STI’s bullishness is starting to get weaker

Last week, STI continued its strong bullish movement during early of the week and managed to hit as high as 2994 level. It had managed to break a resistance level at 2960 level and head towards the next resistance of 3000. However, STI barely touch that resistance level as traders were eager to take profit off the market before it reaches that level. Last Friday, due to the escalating concerns on the European crisis, traders used this reason to take profit to avoid the weekend. Friday’s selling action caused STI to close at 2960 level where the resistance could have possibly turned into a support level. Despite the pullback on Friday, STI closes the week strongly at 42.05pts higher.

Such a bullish week had attracted a lot of market participants into the market as many feared that they will be missing more rally. Trading volume did significantly increase last week, but will increasing trading volume signify a sustainable rally for this week? Or will the long expected good retracement is going to happen this week?
Let’s get some clues from STI’s chart.

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 2890(200ma), 2920, 2960

 

Resistance: 3000, 3060, 3100

 

Observations:

Candlestick – Bearish engulfing pattern.

Histogram – 2Rs. Possible bearish divergence. Lacking of a clear formation of higher high in the price movement

RSI – Around 79%. Overbought for 3rd week. No bearish divergence seen.

Stochastic – Around 73%. Bearish crossover formed. Turning out of overbought.

Bollinger Band – Closer to upper band. Band continues to open up.

 

Conclusion:

STI’s underlying bullish sentiment has caused STI to head higher after it managed to break out of its resistance level of 2920 and also 2960 level. The movement last week has also caused STI to trade higher than 200ma and also confirmed that STI’s mid-term uptrend is likely to be sustainable. However, this does not mean that one to rush in to buy now. Numerous prices had escalated quickly last week and penny counters that have not been actively traded are starting to appear in the top volume. This sudden frantic on the penny counters can be a hint that either the foolish traders are starting to appear in the market and it can also be a sign of optimism in the sentiment. In order to identify whether STI is in an extreme optimism, we can use indicators to help us to identify.

 

The mid-term indicators continued to show bullish indications but the histogram formation indicates a possible bearish divergence. If STI managed to show a clear higher high formation by retracing further this week, bearish divergence will be clear. The short term indicators are showing bearish signals after last Friday’s bearish engulfing formation. This can indicate that STI might face a bearish start for the week and retracement is likely to happen. Overbought condition is still seen in the RSi and thus limiting the upside of STI. Hence, there are higher chances of STI heading lower than heading higher this coming week.

 

Given that chances of retracement are high right now, support levels will be important for this coming week as it can not only tell us whether current uptrend is sustainable, it can also provide possible buying opportunities. The immediate support level will be 2960 level where this resistance level has now turned into a support level after it has been broken. However, 2960 is unlikely a strong support level as there is lesser confluences with previous highs and lows. Hence, STI might head lower if 2960 support level breaks. The next better support level will be the consolidation break out level at 2920. This level can be a strong support level to form a higher low formation. However, the strongest support level will stand at 2890 level where it has strong confluence with 20 & 200ma lines. Hence, retracement can be expected to test 2920 or 2890 level when it happens this week.

 

Despite higher chances of retracement for this week. We cannot rule out that STI’s underlying mid-term trend is still uptrend. There is still some chance that STI might be able to break 3000 level and head for the gap resistance levels or 3060 level. However, when we look into the weekly chart of STI, STI is show a weak white candle with upper shadow failing to break 100wma. This candle formation could be a sign that STI is now struggling to break 3000 resistance level and is unlikely to break for this week.

 

In conclusion, STI’s bullishness last week might come to an abrupt end as smart traders started to be rationalise STI’s current rally. Traders had started to be cautious and take some profit of the market. Hence, this might lead to a retracement for the market this week as buyers starts to be cautious while sellers starts to be active. STI might test 2960 support level early this week to see whether it will be holding firmly. But based on chart readings, 2960 might not be a strong support level and STI will more likely to head towards a stronger support level of 2920 level if 2960 level breaks. Therefore, one should not be eager to long right now and should be more eager to take some profits off the market.

 

What to watch out for this week:

1)      Breaking of 2960 support level.

2)      Testing of 2920 support level

3)      Testing of 3000 resistance level.

 

 

Trading strategy to adapt right now:

-          Long traders should focus in taking at least partial profits from the market as it is reaching resistance level. Adding long position before the market reaches a proper support is not advisable.

-          Shortists who have high risk appetite might want to take some counter trend short positions to take advantage of this possible short term retracement. Profit target should be close to avoid unexpected strong rebound.