STI has broken 3,000 psychological level or has it not?

STI continued its bullish movement last week despite showing signs of weakness during the previous week. The market was driven by a variety of good and bad news from the European market to the Asian market during the week. There were wild swings of volatility during the week as STI was attempting to test the 3,000 resistance level. Last Wednesday, STI managed to break above 3,000 level but it failed to continue its breakout and started retracing back to 2980 level. However, STI managed to recover last Friday by closing at 3,000 level.

Volatility was clearly seen last week as STI attempted to clear the psychological barrier of 3,000. It is quite uncertain that STI had did indeed broke out of 3,000 resistance level as there is no follow through of the breakout. Has STI truly broke out of 3,000 level? Where will STI’s next resistance level be? Can STI’s uptrend be sustainable without a proper retracement? These are various questions that is being asked now.
Let STI’s chart tell us the answer.

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 3,000, 2960 (20ma), 2920 (200ma)

 

Resistance: 3060, 3100, 3170

 

Observations:

Candlestick – Doji like body with long lower shadow.

Histogram – 2Rs. Possible bearish divergence.

RSI – Around 74%. Just entered overbought. No bearish divergence seen.

Stochastic – Around 71%. Bearish crossover formed.

Bollinger Band – Closer to upper band. Band starting to squeeze.

 

Conclusion:

The intense trading volatility for last week is a mark of a struggle between bullish and bearish last week. However, the bulls eventually won as STI ended with a white candle in the weekly chart. Its recovery on last Friday had helped STI to end the week as a bullish week. However, the key concern now is whether STI has already broken the 3,000 resistance level or it has not. Currently, I will be making the assumption that STI had already broken the 3,000 resistance level and it has turned into a support level. However, to have a better understanding of what is likely to happen this coming week, the indicators should be able to give us some clues.

 

The mid-term indicators are still stating that STI’s trend is uptrend. However, this uptrend is getting weaker as bearish divergence signals started to get more obvious. In the short term, STI is suffering from bearish momentum as the indicators were showing bearish readings. However, what is contradicting is that prices are going higher and this caused RSI to start rising into the overbought zone again. This might trigger confusion in reading and hence, the indicators might not be as reliable currently. Hence, the currently readings should be relied on the more mid-term readings to derive a better understanding of the current movement. Thus, STI is still experience a bullish movement but one has to be cautious as there is existence of bearish divergence currently.

 

As the market can go either way this coming week, it is important for us to identify which are the key support and resistance levels that STI might be facing. If STI fails to stay higher than 3,000 level this week, STI should be heading towards 2960 support level where 20ma might help to support STI from falling further. On the other hand, if STI manages to stay above 3,000 level this week, it will likely to head towards 3060 resistance level or even 3100 level. These are the key levels that one should watch out in this upcoming week. Currently, chances are still on the upside as the mid-term momentum is still bullish.

 

However, due to the existence of bearish divergence, one must also be cautious of the upside and be ready for any sudden downside movement. A deeper retracement will be triggered if STI fails to hold at 2960 support level. This deeper retracement might have a downside target of 2920 or even lower is 2960fails to hold. Therefore, any trades currently should be cautious and stop loss levels must be strongly adhered to avoid unnecessary losses.

 

In conclusion, STI is likely to continue higher as long as it stays above 3,000. However, one should be cautious also as STI’s bearish divergence signal is still intact. It is still quite unclear whether 3,000 level will hold as a support and this will be the key level to determine STI’s direction for the week. If STI fails to hold at 3,000 level this week, it will retrace towards 2960. On the other hand, if 3,000 level hold on as support, STI will be heading towards 3060 as the next resistance. A caution note is also being derived for this week. 2960 is a key support level for STI to sustain its current bullish movement. If STI fails to hold at 2960 level, it will be going for a deeper retracement.

 

What to watch out for this week:

1)      Holding of 3000 support level.

2)      Testing of 2960 support level

3)      Testing of 3060 resistance level.

 

 

Trading strategy to adapt right now:

-          Long traders might be attracted to enter long positions based on breakouts currently. If the long trader does not have heavy long positions, he can take some cautious long with tight stop loss levels. Otherwise, it will be best to stay sidelines and rely on trailing stops for the current long positions.

-          Shortists have to tread carefully currently as the market can go either way right now. Staying sidelines could be a wiser move for Shortist currently.

 

 

*Disclaimer:

This analysis is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to purchase or sell the product mentioned. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of you acting based on this information. Investments are subject to investment risks.

Please consult your respective advisers.