*Disclaimer: This material 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. If there are any questions, please contact me (Jay)

 

STI gapped up strongly after the US’s better than expect job data was announced. Traders make used of this opportunity to push the price higher. STI opened at 2948 level which immediately broke the resistance level of 2920. It tried to push higher during the early trading session which reached as high as 2959 level before selling pressure starts to set in again. Selling pressure starts after lunch as Europe market opened slightly red causing some concerns in the market. Hence, STI closed at 2940, 22.15pts higher with significant trading volume. Last night, DJI struggled to stay bullish but it still remains 17.1pts down after opening much lower. Will STI be able to sustain its gains today? Or will STI do its gap covering action today?

STI closed with a black candle with upper shadow after a strong gap up movement. This candle indicates that STI faces some selling pressure and might be facing a resistance level. The immediate resistance level for STI is now deemed to be at 2960 level. The short-term indicators are still showing bearish momentum but they are starting to weaken. Stochastic is starting to show a possible bullish crossover and if STI trades higher today, it will confirm the crossover to trigger a bullish signal. With a bearish candle pattern, there is a chance of STI to retrace slightly to close the gap it had created. 2931 – 2939 levels will be the gap support range which STI might try to cover it either today or the next period. With possible bullish crossover in the Stochastic, STI might continue to attempt to higher high and test its immediate resistance level of 2960.

The banks attempted to trade higher with a gap opening but they failed to sustain their gains and closed lower than their opening. Ocbc even failed to close in the positive region which ended up 4cts lower. Its candle formation had caused it to form a bearish dark cloud cover formation. At the same time, this formation formed at 200ma line and this could mean that Ocbc is facing strong resistance from 200ma. Selling pressure is to be expected for OCBC. The offshores were performing strongly yesterday after they struggled to trade higher last week. Sembcorp managed to exhibit a break out yesterday and it should be heading towards its next resistance at 4.90 level or even 5.00 level. Kepcorp formed a clear higher low formation and it is likely that it will seek its immediate resistance to break it to form a higher high. Immediate resistance of Kepcorp stands at 10.85 level.

Most of the properties managed to trade higher yesterday despite the market experiencing some selling pressure yesterday. Capitaland is one of the stronger performers yesterday as it attempted to break the 200ma resistance line. However, it failed to break it yesterday and might attempt to break it again today. Citydev on the other hand, managed to break with a gap up yesterday. Citydev have also achieved a higher high breakout and should be heading for the next resistance level to form a higher high formation. The next resistance level for Citydev will be around 10.58 level. The commodities continue their strong performance yesterday as many managed to break out for a higher high. Noble grp and Golden agri managed to break their recent high and confirmed their continuation of uptrend for a higher high. Olam and Sakari which has been in the limelight failed to break their recent high and ended up with black candles. If they manage to break out from their recent high resistance level, it will bring more upside to these 2 counters.

In conclusion, STI had managed to break 2920 resistance level with a strong gap up. A gap support has now been formed at 2931 – 2939 levels. There is a possibility of STI retracing to close this gap support but there is a higher possibility that STI will head higher as there is bullish indications in the indicators. 2960 is the immediate resistance level for STI as it struggled to break it yesterday. In order for STI to break this resistance level, the banking sector must be performing bullishly in order for it to happen. Hence, the banking sector is the key on whether STI will be able to break its immediate resistance level. Currently, the rest of the sectors are still enjoying their bullish runs and they will help STI to maintain above 2920 level.

 

Long traders should start to be careful in selection of counters to long. Numerous counters have already bounced off their support level and break for a higher high. Breakout strategy can be adopted right now but it might not yield good risk and reward. Shortist have to stay sidelines for the time being until there is weakening in the current bullish sentiment. Resistance level should be eyed for bearish candle patterns.

Last week, STI attempted to make a retracement move by opening lower and formed a bearish reversal formation on Monday. However, the support level at 2890 level was so strong that STI failed to trade below it and rebounded strongly. For the whole week, STI consolidate in sideways for the week ranging between 2880 – 2920 levels. Many attempts to break 2920 resistance level were seen during the end of the week but they were unable to break above that level. Hence, STI ended the week flat with only 1.69pts higher.

Flat trading week have set many market participants pondering whether STI had a proper retracement. Many were still waiting for STI to hit a much lower support level to enter long positions. Will that happen? Or will STI be able to break out of this range and head higher this week?
STI’s chart should give us hints of the direction for this week.

Trend: Uptrend, 20ma up, MacD above 0

 

Support: 2890 (200ma), 2850, 2790

 

Resistance: 2920, 2960, 3000

 

Observations:

Candlestick – Small white candle with upper shadow.

Histogram – 5Rs. No bearish divergence seen.

RSI – Around 75%. Overbought for 2 weeks. No bearish divergence seen.

Stochastic – Around 66%. Possible bullish crossover forming.

Bollinger Band – Between mid and upper band. Band continues to open up.

 

Conclusion:

STI’s attempt to retrace towards 2850 failed to materialise as the support level at 2890 stays firm. STI first few trading days for the week shows that 2890 support level will hold well as there are lower shadow formations. Lower shadows indicate that the market is testing its support level but failed to trade lower than the support. During the early week, STI also faced resistance from the 200ma line which continues to trend downward, which prevented STI from heading higher. The key turning point happens last Friday as STI is able to gap above 200ma line and stay above it. However, STI immediate faces resistance at the horizontal resistance of 2920 and was unable to break it. But its attempt to stay above 200ma is already a bullish movement for STI.

 

The mid-term indicators continued to show bullish indications and are unlikely to weaken for now. Breaking of 200ma resistance line is also another clear indication that the uptrend is likely to remain sustainable. Short-term indicators on the other hand were showing bearish momentum despite that STI did not retrace much. This is an indication that STI is performing a sideways retracement and it can be a good form for retracement for the market. Sideways retracement is also a sign of very strong uptrend that is likely to be sustainable for another league of upside movement. RSI which has been in the overbought position for 2 weeks might continue to remain overbought for the time being.

 

As STI could be doing a sideways retracement right now, STI might be ready to break for a higher high level. In order for STI to go for a higher high, it must break out of its consolidation range of 2880 – 2920 levels. Hence, 2920 resistance level will be the key for STI to break for a higher high. The short term indicators are starting to show the weakening of the bearish momentum and bullish pressure is starting to build up. If STI is able to break 2920 this week, it will trigger bullish signal in both Stochastic and Histogram and these will greatly encourage further upside to be seen. If this is true, STI will be heading towards its immediate resistance level of 2960 level or in the best case scenario, head towards 3000 resistance level.

 

On the other hand, if STI decides to stay stubborn, it will continue to stay in the sideways range between 2880 – 2920 levels. If this is true, STI might continue to consolidate this week before a clear breakout can be seen. Downside risk is now minimal as the support level at 2890 will be a strong level as the trending 200ma is at 2890 support level. Therefore, odds are still on the bullish side and breakout of 2920 level is more likely to happen for this week.

 

In conclusion, STI could have completed its retracement movement via a sideways formation. This can be a very bullish sign as there is no existence of deeper retracement. Lacking of deep retracement indicates that the market sentiment is very bullish and this is very likely to happen right now. The key for STI right now is the 2920 resistance level. If STI is able to break 2920 resistance level, we will see STI heading towards 2960 level or even 3000 level before another significant retracement to happen.

 

What to watch out for this week:

1)      Breaking of 2920 resistance level.

2)      Testing of 2960 resistance level.

3)      Testing of 3000 resistance level.

 

 

Trading strategy to adapt right now:

-          Long traders can accumulate some long positions as long as the risk and reward remains good. Partial profit should be taken when resistance level is being tested.

-          Shortists should avoid shorting until the market has reached resistance level.

 

 

*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.