1st Quarter Earnings Season affect performance of Straits Time Index | Jay Chia - Your Financial Mentor

1st Quarter Earnings Season affect performance of Straits Time Index

1st Quarter Earnings Season affect performance of Straits Time Index

Last week turns out to be a bearish week for Straits Times Index as first quarter earnings reporting season comes to a peak. Many companies suffered lower in earnings which could have cause market participants to exit the market last week. Concerns of US interest rate hikes continue to weigh on the market last week. Therefore, STI was seen not be able to go beyond 2950 resistance level despite its strong breakout at 2900 resistance level. Furthermore, it failed to stay above 2900 level last Tuesday. With the failure to hold above 2900 level, Traders starts to rush on the bearish side with created further down pressure on STI. Hence, STI was seen closing 101.91pts down. Ending at 2838.52 level.

Many reports are citing for further bearishness in the market. Some went to the extent of calling for a continuation of downtrend action. How can we confirm their citation?

Let’s review the chart of STI for the confirmation.

Trend: Possibility of switching to uptrend, 20 wma turning slightly up, MacD near 0 level.

Support: 2800 (20 week MA), 2740, 2680

 Resistance: 2900, 2950 (50 Week MA), 3020, 3080

Observations:

Candlestick – Long Black Candle.

Histogram – Turned 1R. MacD closing to 0 line

RSI – At 65%. Near 70% line.

Stochastic – At 72%. Nearing overbought.

Bollinger Band –Between mid and upper band. Band contracting.

Conclusion:

STI had failed to sustain its important support level at 2900 level last week. This movement had totally thrown off the possibilities of STI heading towards 3020 resistance level. Hence, we can conclude that there is a failure in breakout for uptrend and this will also mean that STI might have failed to form its uptrend formation. With all these happenings, it is important to re-evaluate new possibilities for STI right now. Uptrend formation does still have opportunity to form despite last week’s movement but the key now is to identify which are the levels that will lead STI to lose its opportunity of uptrend formation.

 

Mid-term indicators are still struggling to confirm its uptrend formation. Last week’s movement have forced them to remain in the bearish territory and hence, it is hard to determine whether the trend had truly reversing. Shorter-term indicators had also flipped to the bearish side quickly after last week’s movement. The abrupt movement by STI last week have thrown the indicators to an unpredictable fashion.

 

Indicators had failed to show a clear picture of whether STI is confirming its uptrend formation or starting its downtrend formation. Hence, the only thing that we can rely on right now is to determine the trend using the highs and lows. STI had formed a higher low formation at 2800 support level. This higher low formation is where the possibility of uptrend formation is being heightened. Therefore, 2800 level will be the key support for uptrend formation. Failure to hold above this support level at 2800 will mean that STI’s uptrend formation have turned into a downtrend formation. Failure to hold at this support level can lead STI to head towards its support at 2740 or 2670 level.

 

There is another possibility that STI might be seeking this week. What if STI is to hold at its support at 2800 level? Holding at 2800 support level will mean that STI will be consolidating for a sideways movement between 2800 to 2950 range before it can have a much more conclusive movement. When this happens, it will also mean that there will still be possibilities of STI forming its uptrend movement again. The last possibility is that STI will be rebounding before it is able to reach 2800 level; without testing 2800 support level. When this happens, it will mean that STI will be forming a higher low formation.

 

In conclusion, the Straits Times Index is currently at the crucial point of determining whether uptrend will continue or downtrend will be forming. 2800 support level is determined to be the key support level to defend STI’s uptrend possibility. If 2800 support level fails to hold, downtrend pressure will start to form and it will likely to bring STI towards 2740 or even 2670 level. With the current 1st quarter reporting period, majority of the earnings are lowered. Lower earnings will likely to impact on STI this week. Hence, we must be prudent in stock selection during this week in order to avoid any unexpected situations.

 

What to watch out for this week:

1)      Testing of 2800 support level

2)      Breaking of 2900 support level

3)      Testing of 2900 resistance level

4)      Testing of 2740 support level

 Trading strategy to adapt right now:

-          Long traders should stay cautious

-          Shortists can consider some short positions if there is confirmation of downtrend formation.

 

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*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.

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