Sudden reversal in sentiment lifted Straits Times Index | Jay Chia - Your Financial Mentor

Sudden reversal in sentiment lifted Straits Times Index

Sudden reversal in sentiment lifted Straits Times Index
Sudden reversal in sentiment lifted Straits Times Index

Brexit incident did not deteriorate the market like many expect it to be. Instead, it turns out to be a usual occurrence in the charts last week. Losses during the previous week were quickly being recovered last week as positive vibes returned to the market suddenly. Britain have yet to leave the EU; which came into awareness to many that it might even take years for this to happen. There were still debates in the EU currently, hence, conclusive decisions are hard to make currently. Therefore, the market could have decided to shift its focus towards other issues. US Fed have decided to delay their interest rates hike to a later date. This brought cheers to numerous in the market and brought up counters that are interest sensitive. The banks and even Reits sectors were quick in rebound. Oil prices also resumed its bullishness and hence, further lifting the oil-related counters. This sudden change of sentiment had lifted STI back at 2846.37 level. The week turned out to be one of bigger gain for this year. The Straits Times Index gained 110.98pts last week.

Many are still puzzled by the abrupt reversal of sentiment last week. This will create ponders on whether the rally will be sustainable for this week. Let us evaluate STI’s chart to anticipate this week’s direction.

Trend: Possible sideways to uptrend, 20 wma point upwards again, MacD near 0 level.

Support: 2800 (20 week MA), 2730, 2670

 Resistance: 2860 (50 week MA), 2900, 2950

Observations:

Candlestick – Long white candle. Bullish engulfing pattern.

Histogram – Reversed to 1G. MacD close to 0 line

RSI – At 49.9%. At 50% line.

Stochastic – At 39.3%. Possible bullish crossover.

Bollinger Band –At mid band. Band squeezing.

Conclusion:

Last week’s price movement had indeed made many chartist puzzled on the possible upcoming direction of STI. 2730 support level held firmly and a strong rebound is also been seen. This indicates that STI is not forming a downtrend movement despite a lower high formation. Lower high with same lows will put many to instinctively think about descending triangle formation. If you make clearer observation, the strong rebound last week seems to have prevented STI from forming another lower high. Yet, this lead to another puzzling knot on market’s direction. When in doubt, it will be the best to check with the indicators.

 

The mid-term indicators seem to be in a confusion state too. MA line reverts to its upward movement while MacD approaches the 0 level without confirming its bearish crossover. This is a positive sign that skews towards the bullish momentum but further confirmation is needed as the MacD has yet to trend above its 0 level. Shorter-term indicators reversed towards the bullish side instead of continuing its bearish momentum. Although the momentum had seemed reversed, the indicators are still considered to be on the bearish side. The indicators seemed to be inconclusive. This implies that there is a possibility of sideways formation.

 

With possibility off sideways formation, it will be important to identify the sideways range. It is clear to see that STI have formed a strong support at 2730 level during the Brexit saga. This strong support will be a strong foundation for the sideways formation. 2800 resistance level was broken easily by the market last week despite its confluence with the 20 week MA line. Hence, it cannot be a good sideways resistance level. Hence, the next resistance level at 2860 level can be a better resistance level. 2860 confluences with the 50 week line; this means that 2860 resistance level is much stronger. Furthermore, the upper shadow that STI had formed last week has clearly shown that the resistance level is strong. Therefore, STI’s sideway range is between 2730 – 2860 levels.

 

Sideways range can also help us to clearly identify the next trend that STI may adopt. Breaking resistance at 2860 level will mean that STI is forming an uptrend formation. Bullish traders should focus in the breakout of 2860 resistance level. On the other hand, 2730 level is the key support level to determine if STI will be forming its downtrend. Once this support level breaks, it will mean that STI will be forming downtrend which will lead to downside pressure in the coming weeks. As STI is trading closely to the resistance level right now, it is more likely that STI will be facing resistance this week. Possibilities of profit taking actions will appear too. However, downside might be limited by the support at 2730 level.

 

In conclusion, the Straits Times Index clearly showing a sideways trend currently. The range is from 2730 to 2860 levels. As it is now trading close to the resistance at 2860 level, it is important to watch closely whether STI will be breaking this resistance level. Breaking out of this resistance level will lead to new uptrend formation. If this resistance level holds, one should expect profit taking actions to happen which can lead STI towards 2730 level. Therefore, STI is now facing a crucial period as it will be the defacto of its upcoming trend.

 

What to watch out for this week:

1)      Testing of 2860 resistance level

2)      Breaking of 2860 resistance level

3)      Testing of 2800 support level

4)      Testing of 2730 support level

 Trading strategy to adapt right now:

-        Long traders can consider cautious positions when breakout happens.

-        Shortists should only be involved when profit taking actions happens.

 

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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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