Yesterday, STI was seen attempting to rebound but it ended up fruitless as concerns of the European crisis persisted yesterday. STI opened slightly higher yesterday and started to climb towards 2850 level again when bargain hunters started to get into the market. However, after lunch time, HSI started to plunge strongly and STI follow suit. Coupled with weak opening in the European market, STI closed 8.54pts lower and ended up at 2822 level. Concerns of European crisis certainly are the main reasons for the current market bearishness. Last night, DJI ended 156pts lower which broke another of its support level. Will STI be able to hold at its upcoming support level?

STI ended up with a black candle with upper shadow yesterday. Its upper shadow tested the 200ma line and it signifies that 200ma is resisting STI’s upside. This also confirmed that STI is now trading below 200ma and the previous day’s movement is not a whipsaw. Short-term indicators continued to show bearish momentum and are likely to continue today. Oversold indications persisted and there is no clear sign of it turning out of the oversold zone. Therefore, STI will likely to continue to head towards 2790 support level to test it before a significant rebound can occur.

The banks closed slightly lower yesterday as they are still testing their support levels. DBS is now trading below its 20 & 50ma lines and is likely to head towards its 100ma at 13.30 level to find support. Ocbc tested its 100ma support line at 8.54 level and will likely to continue testing this support level. Most of the properties were trading flat yesterday and they were seen attempting to rebound. Capitaland was the only that ended lower yesterday as it tested its 200ma support level at 2.59. Capitaland’s strong support level is at 2.56 level and it will likely to test this level. Citydev managed to end up higher yesterday but its rebound was resisted by its 20 & 100ma line. If Citydev fails to hold its support at 200ma, 10.00 level, further downside will persist for Citydev.

The offshores sector was seen to be holding their support well after closing mixed. Sembcorp was the only one that continued its rebound and could be testing its resistance at around 4.97 level. There is a possibility that Sembcorp might be forming a lower high formation here. Kepcorp and Sembmar were trading horizontally for the past few days. If they break this horizontal support, they will be sliding down further. The commodities carried on their bearish streak yesterday as they seem like falling into a bottomless pit. Noble grp and Indoagri formed a black inverted hammer candle and this could be a hint that the selling pressure is weakening. If white candle is formed, they will have a better chance of rebound.

In conclusion, despite STI attempt to rebound back above 2850 level yesterday, bargain hunters were being shot down by the sellers yesterday. Yesterday’s movement has also confirmed that 2850 level is now acting as a resistance level and STI will be more likely to head lower today. Support level for STI stands around 2790 level and it will be the likely target for STI to slide towards. Sectors that might bring STI down further will be the commodities and properties. However, the banks and offshores might be the one triggering further drop if their support levels fail to hold.

Long traders have to wait till another support level to trade for a rebound. Shortist might be tempted to do short position but careful selections might yield good shorting counters with good risk rewards. The banks and offshores sector might be a good sector to consider for downside breakout play.

STI failed to confirm with bullish reversal signal yesterday as it failed to hold at 2850 support level. STI opened with a gap down in reaction to DJI’s previous day’s bearish closing. STI struggled to hold on its support level of 2850 but it failed to hold after HSI started to tumble down strongly after opening. This caused bargain hunters on the previous to exit fearing that STI is going to slide down further. Flat opening by the European market did not help to improve the sentiment and hence, STI closed at 2831 level, 45.55pts lower. Last night, DJI continues to head lower by 33.45pts. Will STI be slide further today? Where will the new support level for STI be?

STI closed with a long black candle. This black candle signifies that STI is experiencing strong bearish movement yesterday which confirms that 2850 support level is broken. Breaking of 2850 support means that 200ma support level is also broken. 200ma is an important line to determine if the mid-term of the market will be turning bearish. Since, 200ma is broken; STI’s mid-term trend might have changed into downtrend. The short-term indicators failed to confirm their bullish signal yesterday. They continued their bearish sentiment and stayed oversold. Therefore, STI might still be heading lower until they form a proper bullish reversal formation. The new immediate support level for STI now stands at 2790.

The banks ended up lower yesterday as the bearish sentiment of the market persisted. Their bullish reversal candle failed to confirm yesterday. Furthermore, the 3 banks failed to hold at their 20ma line and close below it. Ocbc suffered the strongest sell off which caused it to trade close to the 100ma line. Ocbc might be heading back to its sideways support level at around 8.55 level. The offshores were unable to head higher yesterday but they were able to hold their support levels well. Sembcorp continues to stay above 100ma despite the selling sentiment yesterday. Kepcorp and Sembmar might be forming a firm support level before they can rebound.

The properties were also trading lower yesterday but they did not suffer strong selling pressure. The only property that suffers strong selling pressure is F&N. F&N broke its 50ma support line yesterday and even tested 100ma line. It closes exactly at its support level of 6.57 level and is threatening to head lower if this support level fails to hold. F&N had also failed to continue its uptrend movement and is now poise to start forming either a sideways or downtrend. Much of STI’s bearish movement comes from the commodities yesterday. Olam gapped down strongly yesterday after it weak 1^st quarter earnings report. Olam dropped a whopping 10.8% lower yesterday which broke multiple support lines. The rest of the commodities also followed the fall with an average of 3% down as market participants were concern of the drop of earnings in the commodities sector.

In conclusion, expectation of a rebound at 2850 level has now vanished as this is one of the strongest support level being seen. Breaking of 200ma support line will likely to trigger off more selling sentiment going forward as this is a key line for many investors to reconsider holding on to their investments. If STI fails to head back and stay above 2850 level, it will give STI a downside target of at least 2790, as 2790 will be the next support level of STI. The indicators are not favourable on the bullish side right now and there is a good chance that STI might test 2790. Oversold condition might continue to persist for now.

Long traders can continue to wait for bullish reversal signal with confirmation to execute long positions. Shortist might be encouraged to take further profits as the prices slide lower.

Yesterday, STI halted it’s descend yesterday as it tested its support level of 2850 yesterday. Although STI gapped down during opening in reaction to DJI previous night’s closing, STI still managed to hold itself well at the support level and rebounded. STI was struggling to rebound early in the morning period as the regional markets were mostly trading in red. Strong buying pressure was only seen before the opening of the European markets. Positive openings in the European markets had lead STI to head higher during the day and eventually, STI ended at 2876.7, which is 12.58pts higher. Last night, DJI failed to rebound and ended 63.35pts down. Will STI be able to continue its rebound today? Or will it drag back to its support level of 2850 level again?

STI ended as a white candle formation. The past 2 days’ candle can be read as a bullish piercing formation which is a bullish reversal formation. However, this candle formation requires confirmation before it can reverse the current sentiment. The short-term indicators were triggering bullish signal after yesterday’s bullish movement. Furthermore, both RSI and Stochastic were in oversold and are starting to turn upwards. With these readings, the chances of STI to rebound currently are high. However, the catch for this rebound is that STI might close higher than 2889 level before it can confirm this bullish reversal. Furthermore, due to the downtrend condition of STI currently, STI might be facing immediate resistance from 2880 or 2910 levels.

The banks were performing bullishly yesterday as they managed to hold well at their support level. Bullish reversal candles were seen but they require strong confirmation. Uob have managed to jump back to its 20ma line after testing its 50ma support line. If it is able to trade above 18.50 level, Uob might be able to continue its uptrend movement again. The offshores sector is one of the strongest sector yesterday as they had rebounded strongly. Sembcorp was able to confirm its bullish signal by trading above 100ma line. It might be heading towards its 20 & 50ma line which is at 5.02 level now. Kepcorp and Sembmar formed bullish reversal pattern yesterday and they might follow Sembcorp’s footsteps today.

The properties were also attempting to rebound yesterday after testing their support level. Kepland refuses to break its 100ma support line and was able to form a bullish piercing formation yesterday. If Kepland is to close higher than 2.96 level, Kepland will be heading towards its 20ma at 3.07 level. The commodities were the only bearish sector that was seen yesterday. Poor first quarter earnings continue to plague these counters, causing them to trade lower and lower. Indoagri broke its support level and plunged further towards its next support of 1.29 level yesterday. Olam announced its 1Q earnings yesterday evening which did not turn out well. Traders might have strong reaction on Olam’s earnings and create a selling down once market open.

In conclusion, STI is ready to start a proper rebound as long as it is able to confirm its bullish signal today. The confirmation level for rebound is 2889 level where STI must close above it. If STI is able to close above it, STI will likely to test 2910 level as a resistance. Most of the sectors were poise for rebound but the commodities sector will likely to weight STI’s upside. STI is still running the risk of bearish movement since its trend is still downtrend. With bearish closing by DJI last night, STI might not start with a rosy sentiment and might retest 2850 support level again before it can have a proper rebound.

Long traders should pick out counters with bullish signals and execute long position once the bullish signals are confirmed. Shortist should be staying aside awaiting for the rebound to test the resistance level before entering short positions.

Yet again, STI failed to rebound after its attempt during last Friday’s trading session. STI was able to head towards 2910 resistance level after it opened slightly higher yesterday. However, selling pressure started to enter the market after HSI opened negatively causing STI to head back to 2880 support level again. After lunchtime, STI started to break 2880 support level after reports of Greeks might quit the European Union. This lead to more fears in the market and causing the European market to open with a deep gap down during its opening. STI eventually close at 2864 level which is 19.28pts lower. Last night, DJI ended 125.25pts lower after the fear of European situation worsening. Will STI continue to go lower today? What is the new support level for STI currently?

STI closed with a long black candle yesterday despite it having a gap up opening. This candle can be seen as a downward continuation pattern and this candle has also confirmed that 2880 support level has been broken. Hence, STI might be heading for its next support level. The short-term indicators continued their bearish momentum and Stochastic failed to trigger a bullish crossover after the market failed to rebound yesterday. Oversold continued to be seen in the indicators till a proper reversal candle is seen. The next support level for STI stands at 2850 level. This support level confluence with 200ma support line and it could be a strong level to stop STI’s further decend.

The banks were affected by the report from the European side and drastically reversed their earlier bullish movement and ended up lower. They reversed the gains achieve last week and most of them tested the 20ma line again. Uob’s 20ma support line failed to hold Uob but Uob ended up at 50ma support level. For the past month, Uob has been holding well at 50ma support line and it will likely be happening again. The offshores were trading mixed yesterday as they were not moving in tandem yesterday. Sembcorp enjoyed a rebound and attempted to trade above its 100ma resistance line again. Kepcorp, on the other hand, slide further and is seeking support around 10.04 level.

Most of the properties ended lower yesterday and most of them failed their attempt to rebound off their support levels. Capitaland and Kepland did not managed to confirm their bullish signals and ended up lower yesterday. F&N tested its 50ma support line again and one will not be too sure whether this support level will hold. The commodities ended decisively lower yesterday as they continued to be lacking of catalyst to rebound. As the commodities are in extended downward movement, their indicators were constantly oversold. If there were any confirmation of bullish reversal, rebound for the commodities should be a significant one.

In conclusion, selling pressure is likely to continue today as there is lack of signs of reversal. Numerous sectors like Commodities and Offshores were attempting to find their support while sectors like Banking and Properties might hold well at their support levels. Hence, STI is likely to head towards its next support level of 2850 level before it can prepare itself for a proper rebound. Downside continues to be limited as the indicators were showing oversold situation and rebound can happen soon.

Long traders should continue to wait for proper support confirmation before entering counter trend long positions. Shortist should avoid adding short positions as the downside is limited.

Trend: Downtrend, 20ma down, MacD below 0

Support:  2880, 2850 (200ma), 2790

Resistance: 2910 (100ma), 2950, 2980 (20 & 50ma)

Observations:

Candlestick – Long black candle with lower shadow.

Histogram –Multiple Rs. No divergence.

RSI – Around 25%. Oversold. No divergence.

Stochastic – Around 6%. Oversold. Narrowing with possible bullish crossover.

Bollinger Band – At lower band. Band opening up.

Conclusion:

STI, at last, managed to break out of the sideways range after 2 whole months of sideways movement. Despite possible upside breakout being analysed for the past weeks, STI took the worst case scenario after being affected by the news from the European market. Last week, STI also exhibited strong selling pressure after it broken 2 support levels within a week without significant rebound happening. STI’s mid-term sideways support level at 2910 was broken and therefore, this have definitely change STI’s current trend to be downtrend. STI’s weekly chart’s uptrend is now being threatened to turn. Therefore, it is now very important to identify where the support levels are and how likely the rebound will happen for this coming week.

The mid-term indicators were now shifting to the bearish side after STI breaking 2 important support levels. Bearish momentum is likely to continue for the mid-term. For the short-term readings, the Histogram and Stochastic continued their bearish momentum since last week. Stochastic shows that it does have potential to trigger a bullish crossover anytime soon. Furthermore, RSI, Stochastic and Bollinger band were showing that STI is now in oversold region and clearly showed that downside is getting limited and rebound can be expected to happen.

In order for STI to be able to rebound, STI’s support level is to be determined. The immediate support level for STI is at 2880 level. The next stronger support level can be seen at 2850 level where it has confluence with 200ma line. These will be likely levels that STI will execute a rebound. Based on the indicators currently, there is a good chance that STI might be rebound off 2880 support level. Due to the possible crossover formation being formed by STI, if STI is able to stay above 2880 during the early week and close with a positive note, STI will be able to perform a rebound for this week.

If the rebound is being confirmed, STI’s upside should be determined as lower high formation might be formed there. The current immediate resistance of STI stands at 2910 level. 2910 resistance level could be a strong resistance level to prevent STI from going higher because it confluences with the 100ma line. However, if the rebound is strong, STI might also have good chance of rebounding towards 20ma line and would probably face resistance at 2950 resistance level. If lower high is being formed at either of these 2 levels, STI will be more likely to continue its downtrend and might hit the next support at 2850 level.

In conclusion, STI is more likely to stage a rebound this week as the indicators were clearly showing oversold indication. There are 2 possible support levels that STI might test before it rebounds. 2880 will be the immediate support level while a stronger support is seen at 2850 level. The key for STI to rebound will be whether STI will be able to close with a positive closing above its support levels. With a hint of bullish signal from the Stochastic, STI might have a good chance to rebound off 2880 support level this week. Despite expectations of rebound happening, STI’s upside will be limited as the trend has turned downtrend. STI’s rebound could be capped by 2910 resistance level and its best case scenario would be at 2950 resistance level.

What to watch out for this week:

1)      Testing of 2880 support level

2)      Testing of 2850 support level

3)      Testing of 2910 resistance level

4)      Testing of 2950 resistance level

Trading strategy to adapt right now:

-          Long traders can selectively pick positions to long using counter-trend strategies given that the risk and reward is good.

-          Shortists should take partial profits when targets or support is being tested. Add short positions only when a rebound happens and resistance level is being tested.

*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.

STI halted its descend yesterday as the fears of the European debt crisis started to easy after previous day’s sell off. STI opened lower with a gap down but it was quick to attempt to rebound despite hitting as low as 2887 level. STI managed to sustain its rebound with the help of positive HSI during the day. Before closing, STI managed to stay at 2900 level and eventually closed at 2903 level. STI is merely 2.69pts higher but the trading volume is getting higher than the previous day. Last night, DJI traded 19.98pts higher ending up as a flat trading day which stopped its downward movement. Will STI be able to stay at 2900 level today? Will STI be ready for a rebound?

STI’s candle was seen to be a white candle body with lower shadow. It can be read as a possible hammer formation but it does not have long lower shadow. It can also be seen as a bullish thrusting pattern which could reverse the short-term movement if it is being confirmed. The short-term indicators were still showing bearish momentum but they were starting to show signs of weakness. With the indicators seen to be in the oversold position, downside will likely be limited while rebound possibilities will be greatly increased. STI’s current support level stands at 2880 level and this support will limit STI’s downside. The immediate resistance is found at 2910 level where 100ma trends there. In order for substantial rebound to happen, STI must first be able to break this 2910 resistance level before it can test the gap resistance between 2950 – 2987 levels. Henceforth, STI might trade between 2880 – 2910 level for now.

The banks were trading strongly yesterday as they managed to bounce off from their 20ma support line. Possible strong earnings could have helped the banks to rebound strongly. Uob is now testing its gap resistance between 18.41 – 18.59 levels and have to yet to break it to confirm its uptrend continuation. Ocbc had attempted to confirm its invert hammer formation and it triggered bullish signalling its continuation of the uptrend formation. The offshores slide further after Sembmar announced it lower than expected results with drop in earnings. This caused Sembmar to gap down deeply causing it to trade below the 100ma line. Sembmar might be heading towards 4.48 level to test its support. Sembcorp and Kepcorp were both trading at 100ma line and were unsure whether to follow Sembmar’s footsteps. If they fail to hold at this support level, they will be heading towards a much lower support level.

The properties were trading lower yesterday in anticipation to their upcoming 1Q earnings. Last evening, Citydev announced their earnings for the 1Q to be lower. This might bring selling pressure to Citydev today. Citydev might head towards its 200ma line at 10.05 level today. Kepland and Capitaland were both struggling to hold their support at 20ma line and there is still no clear sign of their possible rebound. The commodities continue to be plagued by the bearish sentiment and their attempts to rebound were unfruitful. Wilmar was the worst performer yesterday after it had announced its worst than expected 1Q earnings. Its poor earnings had lead Wilmar to gap down strongly breaking multiple support levels in one go. The immediate support level for Wilmar stands at 4.15 level currently. Olam and Sakari also suffered strongly selloff yesterday as they continue to seek for a support level.

In conclusion, there was more selling sentiment than buying sentiment yesterday despite the bullish closing yesterday. The banking sector was the only one that manages to push STI to have positive closing. 1Q earnings report had greatly impacted the prices of various sectors and will likely to continue for today and next week as more earnings will be reporting soon. Despite bearish observations, STI’s bearish sentiment seems to be weakening after analysing the short-term indicators. Strong rebound will only happen when STI manages to break above 2910 level. However, STI is still running the risk to head lower to test 2880 support level for today.

Long traders should continue to wait for proper support confirmation before entering counter trend long positions. Shortist can start to rip off profits once their targets are met. Adding new short positions should be avoided.

STI ended up lower yesterday as European debt crisis continues to bring fear to the market. STI gapped down strongly in reaction to DJI’s negative closing during yesterday’s morning. Attempts to rebound during the day were pushed down by sellers whom want to get rid of their long positions. Selling pressure was seen throughout the day causing STI to slide further testing 2910 support level. However, during closing, STI failed to hold above 2910 level and closed at 2900 level. STI was down 31.07pts yesterday with moderate volume again. Last night, DJI ended up 97.03pts lower again. Will STI be able to recover back above 2910 level again? Where will STI’s next support level be?

STI closed with a black candle yesterday. This candle tested 100ma line and broke the 100ma line slightly. This can imply that 2910 support level has been broken and further downside could occur. The short-term indicators continue to show bearishness and STI will likely to continue lower to seek another support level. However, the downside should be limited now as the indicators are now in oversold region and a rebound might happen once a support is being formed. The next immediate support level for STI stands at 2880 level. 2880 level might be a possible level for STI to find rest and attempt to rebound again.

The banks failed to confirm their bullish reversal formation yesterday but they still managed to hold well at their respective support levels. Uob & Ocbc continues to stay at 20ma support line while DBS have retraced and tested the 20ma line. After market closing yesterday, Uob announced its 1Q earnings with showcased good results. Its earnings might help Uob to achieve a proper rebound from its support level and might eventually start to form an uptrend. The offshore headed lower yesterday as they are still seeking their respective support levels. They could be heading towards their 100ma support level to test it before a proper rebound could be seen. Sembmar announced it quarterly yesterday and the result was weak. Hence, Sembmar is likely to suffer further selling pressure today.

The properties also traded lower yesterday as they have yet to find their support level. Citydev, Capitaland & Kepland managed to test their 100ma line yesterday and seems to be holding well. If they are able to form a bullish candle today, they might have good chance of rebounding for a lower high formation. The commodities were mostly down yesterday with many of them breaking their support levels. Wilmar broke its sideways support yesterday while Sakari and Olam broke their immediate support level. These commodities will likely to head much lower till they are able to find a proper support level.

In conclusion, STI continues its bearish momentum after a pause on the previous day. Many sectors continue their bearish streak and might have room to head lower. These sectors are the offshores and commodities. The main contribution for the drop came from these 2 sectors. Despite expectation of further downside, the banks and properties were holding well at their support levels. If they are unable to hold their support levels, it will bring STI lower today. As the downside risk is high now, STI can be expected to be heading towards 2880 support level to test it. Downside could start to get limited as the short-term indicators were getting oversold.

Long traders should wait for proper support formation before entering counter trend long positions. Shortist can start to rip off profits once their targets are met. Adding new short positions might not be wise right now.

STI took a pause from dropping lower yesterday as traders adopted wait and see approach before looking for bargains to buy. Some traders made use of the sell down to pick up some bargain trade during the opening session which pushed STI towards 2950 level, but sellers make use of the price surge to clear their positions. The sentiment was weakening further when HSI traded into the negative region causing market participant to adopt the bearish approach. Negative opening of European push STI down further and eventually, STI closed at 2931 level. It closed 7.03pts higher with moderate volume again. Last night, DJI slide down further with 76.44pts lower. As market confidence continues to be shaken, will STI still be able to rebound towards 2950 resistance level? Or will STI slide further after DJI’s weak closing?

STI formed a short black candle yesterday. This candle formation for the past 2 days can be seen as a variation of bullish harami pattern. But this bullish pattern requires strong confirmation of bullish before it can truly rebound. Hence, the short-term indicators are important to determine whether STI will have a good chance of rebound. The short-term indicators continue to show bearish momentum and there is no clear sign of them weakening yet. Hence, STI can still be expected to head lower today despite its positive closing. The lack of bullish movement yesterday had caused it to remain bearish. Hence, STI is expected to head lower and probably test its immediate support level of 2910.

The banks attempted to rebound yesterday and they managed to close with a positive note. Despite positive closing, their indicators were still on the bearish side. Hence, they might continue to consolidate at their respective support levels before they can have a proper rebound. Uob & Ocbc are holding strongly at their 20ma line. Hence, they might have a strongest chance of rebound once their support levels have been formed firmly. The offshore were mostly flat yesterday with exception of Kepcorp. Kepcorp failed to hold at 50ma support line and decided to follow the rest of the offshores’ footstep by trading below it. Its triangle support level at 10.80 level failed to hold yesterday and it could be starting to form a downtrend formation. Hence, Kepcorp will be heading towards its next support of 10.50 level.

The properties were dragging STI down yesterday as they are still seeking for their support levels. The main bearish contributors were from Capitaland and Kepland. Capitaland might be heading towards its 100ma line at 2.69 level, while Kepland could be testing its 2.89 support level. Most of the commodities ended up flat yesterday but a handful of them slided much lower yesterday. Golden agri and Wilmar were seen sliding down strongly yesterday as they attempt to catch up with their sector’s counterpart. Golden agri failed to confirm its hammer formation yesterday and instead, it headed lower. It could be testing its next support level at 0.68 which is confluence with 200ma. Wilmar failed to break the 50ma resistance line and it is now dropping back to its sideways range. The sideways range support is at 4.75 level and it could be testing that level again.

In conclusion, STI was trading in a mixed market yesterday as various sectors were moving at their own direction. Bearish sentiment was definitely in the market as attempts to rebound were being suppressed. Yesterday’s market action is likely to be a pause for the market to prepare for further downside today. There are various sectors that yet to have tested their support levels. Sectors like the properties and commodities might drag STI lower for today. Given that DJI have a negative closing last night, STI is likely to open lower and go towards 2910 support level to test it before a proper rebound could be seen. Henceforth, do expect more selling to happen today.

Long traders should wait for proper support formation before entering counter trend long positions. Short traders whom have missed the opportunity to enter short positions should avoid entering short positions now. Downside might get limited as the support at 2910 is getting near. Shortists whom have short positions can consider closing their short position when 2910 level is being tested.

Yesterday, STI started the week with a strong gap down reaction due to concerns of the re-election and re-organisation of both Greek and France government. There was a major change to both government and this lead to anxiety over the current Europe debt crisis. STI opened at 2946 which directly broke the sideways support of 2950 yesterday morning. Efforts to recover above 2950 were seen to be suppressed by panic        sellers whom were fearful of further downside. As further news of the French president re-election was being announced, STI tumbled further downward and further away from the 2950 level. Eventually, STI closed at 2924 level, 65.54pts down with slightly higher than average volume. Last night, DJI did not react strongly to the results of the both European country. DJI closed only 29.74pts lower after the European market closed with a mixed note. Will STI recover its lost grounds and head back to 2950 level again? How low can STI go?

STI created a gap resistance between 2950 – 2987 levels and ended with a long black candle. This formation is a bearish formation which has broken the sideways support of 2950 level. Short-term indicators are also indicating bearish momentum as Stochastic had formed a bearish crossover while Histogram had confirmed its bearish signal. These readings indicate that STI is likely to show further downside going forward. As there is a creation of a gap resistance level, there could also be a possibility of slight rebound to test the gap resistance before heading lower. The current support level of STI now stands at 2910 level where there is confluence with 100ma support line.

The banks were the first to react for the downside as they were likely be the first to be affected if the European debt crisis implodes. Uob gapped down and trade lower yesterday but it managed to stay support at 18.20 major support level which confluences with 20ma line. There is a good chance that this support level will hold as it is a strong support level. Ocbc bk has also shown similar movement as it held well at its 20ma line. There might be a good chance of rebound if their 20ma support held well. The offshores suffered the heaviest selling pressure yesterday although the European situation might not have direct impact to the offshores. They failed to hold at their 20ma support level and went tumbling down. Sembcorp and Sembmar showed the strongest drop yesterday as they also fail to hold well at their 50ma support level. They could have formed a lower low and might start to form a downtrend formation.

The properties also ended lower yesterday. Capitaland and Kepland failed to hold their support levels and continued their downtrend formation. F&N retraced back to its 20ma line and it held well at its 20ma line. F&N might have a possibility to rebound from here. The commodities also suffered selling pressure yesterday and it dampens the opportunities for the commodities to recover from their downtrend streak. Olam has been hold strongly at its 2.26 support level but it broke it easily yesterday with a gap down. It will now face a new support level at around 2.18. Noble grp seems to be starting to continue its downtrend formation as it has formed a lower high formation. If it breaks the current support level of 1.18, it will be sliding towards the next support of 1.12 level.

In conclusion, STI is now facing a strong possibility of downtrend formation as it had broke out of its sideways support of 2950 level. Yesterday’s bearish movement can be a seen as over-reaction of the news as the US and European market did not react as bearishly. Despite the bearish readings from the indicators, there could be a possibility of STI rebounding. However, this rebound is likely to be capped by 2950 support turn resistance level as the underlying momentum for the market is bearish. A handful of the sectors like the banks are trading at their support level. They might be the ones that will lead the rebound if it happens. If STI fails to rebound towards 2950 level today, it will probably head towards 2910 support level to test the support level.

Long traders might have avoided a surprised downside movement after staying sidelines. With possibility of further downtrend, it will be wise to continue to stay aside. Shortist might have complained to have missed the opportunity to short. As prices have gapped down strongly, it will be better to take short position only when there is a rebound to test the gap resistance level.

Trend: Sideway, 20ma flat but slightly down, MacD around 0

Support:  2980 (20 & 50ma), 2950, 2910

Resistance: 3000, 3030, 3080

Observations:

Candlestick – Doji like candle with upper & lower shadow.

Histogram – 1R after Multiple Gs. No divergence.

RSI – Around 50%. No divergence.

Stochastic – Around 75%. Narrowing with possible bearish crossover.

Bollinger Band – At mid band. Band in tight range.

Conclusion:

STI’s ability to be able to stay at 2980 has shown that STI still have bullish potential for uptrend formation. However, its inability to break 3000 resistance level is showing that STI is still unable to break out from its sideways range of 2950 – 3000. 2980 level is starting to get more insignificant after last week’s movement as it seems to be a level where it can neither hold well as a support or resistance level. Therefore, the sideways range between 2950 – 3000 levels will be the key support and resistance levels of STI. In order to identify whether STI will be able to break out of this sideways range, the indicators must show convincing momentums before it can do so.

The mid-term indicators were still showing sideways momentum despite STI testing 3000 level last week. RSI is now back to the neutral level after its attempt to go above overbought zone last week. This is another confirmation that STI is still stuck in the sideways momentum. The short-term indicators were mostly showing bullish indication last week. However, last Friday’s drop has caused the Histogram to trigger a bearish signal. Although Stochastic has yet to form a bearish crossover, it could probably show bearish signal if STI ends lower on Monday. Therefore, STI might experience selling pressure for this week.

With expectation of retracement for this week, STI’s support levels are important to help us identify the directions that STI will be heading towards. The immediate support level of STI is currently at 2980 level. As this level has been tested and broken many times, there might be a good chance that STI might not be able to hold it well despite its confluence with 20 & 50ma. 2980 will also be a level where it can help us to identify whether STI will go back to test its next support level of 2950. 2950 will be the likely level for STI to be tested this week if the bearish signal from Histogram is being confirmed.

As 2950 level is the support level of the sideways range, it is important for STI to hold this support level as breaking it would mean that STI will be heading for a much lower level. If 2950 support level is not holding up, STI will be set to head much lower, towards the next support level of 2910 level. This will also mean that STI has broken out of the sideways range of 2950 – 3000 levels and a new downtrend might be forming. 2910 support level could be another strong support level for STI as it confluence well with 100ma line. 2910 is also the support level of the sideways formation in the weekly chart.

In conclusion, STI is likely to head lower this week with possibility of 2980 support level to be broken. 2950 support level is a key support level in order for STI to sustain its sideways range. If this sideways range is unable to hold, STI might start to form another downtrend possibility again. In the worst case scenario, STI might even test 2910 support level where it is expected to hold well. With current economic concerns on the European economy, it might trigger fear in the market which can lead to selling pressure. Re-election of French president and re-organising of Greek’s government will be the key news that the world market will be watching on. These could be a key news that provides bearish sentiment to the market.

What to watch out for this week:

1)      Testing of 2980 support level

2)      Testing of 2950 support level

3)      Testing of 3000 resistance level

Trading strategy to adapt right now:

-          Long traders with long positions might want to tighten their stop levels to avoid any unexpected downside risk. Shortist might start to crave for short positions but downside could be limited.

*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.