Over the CNY week, STI opened strongly on Wednesday after 2 days of CNY holidays. Bullish sentiment continues to loom the market as the Chinese welcomes the year of Water Dragon. Water related stocks continues to gain strength was superstition were positive of the outlook of these water related stocks for this Water Dragon year. Offshores and Commodities were seen be the favourite during this period. This strong bullish sentiment caused STI to close 66pts higher for the week. Superstition apart, one of the main reasons why STI enjoyed such a strong bullish movement was due to the easing of the European debt issues. The Greeks were issue statements that they are likely to resolve their debt issue soon and thus easing the fear of collapse of the European market.
Despite positive news from the European side, some market watchers are still sceptical of this market rally citing that STI is overbought. Furthermore, STI has surged higher for 4 consecutive weeks and there is real risk of a market retracement. As January draws to a close on Monday, will February be a bullish month also?
Let’s see what STI’s chart is telling us.
Trend: Uptrend, 20ma up, MacD above 0
Support: 2890 (200ma), 2850, 2790
Resistance: 2920, 2960, 3000
Observations:
Candlestick – Long white candle.
Histogram – 4Gs. No bearish divergence seen.
RSI – Around 77%. Overbought for 1 week. No bearish divergence seen.
Stochastic – Around 93%. Overbought. Possible bearish crossover forming.
Bollinger Band – Slightly out of upper band. Band continues to open up.
Conclusion:
Last week, STI managed to break its immediate resistance level of 2850 by gapping up. This could be due to the 2 days holiday break where STI attempts to catch up with the rest of the world’s market. 2890 resistance seems to be preventing the market to head higher last Wednesday. However, STI managed to gap above that resistance level again and started to struggle at the 200ma resistance line. Last Friday was the key for STI’s long term trend. STI managed to break 200ma resistance after Greece announced that they were able to solve their debt problem. Market participants started to flood into the market again and thus, pushing STI to close above 200ma but below its immediate resistance level of 2920 level.
The mid-term indicators were showing that STI’s uptrend going to continue its upside movement for the upcoming mid-term periods. There are still no signs of weakness in the mid-term uptrend as there is no bearish divergence being seen. The short-term indicators continue to show bullish strength despite it being overbought for a long period. Stochastic is starting to show some weakness as a possible bearish crossover could be triggered.
As STI managed to break its key resistance level of 2890 last week, it implies that STI’s weekly chart have now changed its trend to either sideways or uptrend. Breaking of 200ma level increased the odds of STI changing its weekly trend to an uptrend one. In order for STI to confirm its weekly chart to be uptrend, a higher low has to be formed. The last 2 resistance level of STI failed to help STI to form its higher high formation. Hence, the next possible resistance level for STI will be at 2920 level. STI has to form a higher high formation before it can form a higher low formation. Hence, the odds of retracement to happen for STI are getting much higher right now.
If STI starts to form a bearish reversal formation at 2920 level, it will likely to retracement towards its immediate support level of 2890. However, this retracement might be deemed to be too shallow and STI is more likely to go for a deeper retracement after such a strong rally. Hence, STI might have a good chance to head towards 2790 level where the rising 20ma line might confluence with it. If this scenario fails to happen, it would mean that STI’s bullishness is still very strong and it is likely to head even higher. The next 2 possible levels for STI to form higher high formation would be at 2960 and 3000 levels. With the readings of the indicators, STI has higher possibility of retracement then surging higher.
In conclusion, STI’s bullishness is expected to come to an end for this week. The indicators have been indicating its overbought situation and a healthy retracement is now more likely to happen. Current resistance level of STI stands at 2920 level and STI might form a lower high here. What is lacking right now is a bearish reversal pattern to form before one can conclude that retracement is happening. Immediate support of STI now stands at 2890 level but a much better support level is at 2790 level. Henceforth, do expect STI to start retracing before it can hit for a higher level.
What to watch out for this week:
1) Testing of 2920 resistance level
2) Testing of 2890 support level
3) Retracement to 2790 support level
Trading strategy to adapt right now:
- Long traders should have taken some profit out of the market and wait for a good support level to long
- Shortists enter countertrend short position when there are bearish confirmations for retracements. Shorting targets must be close to avoid sudden reversal of sentiment. Stop loss level must be tight as the trend is uptrend 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.
