North Korea Tension to impact Straits Times Index's performance.

North Korea Tension to impact Straits Times Index's performance.
North Korea Tension to impact Straits Times Index's performance.

The month of August ended with a bullish week, with Straits Times Index gaining 17.69pts for the week despite concerns over North Korea firing a missile over Japan. For the start of the week, STI faces resistance from 3270 level which stops the market from going higher. Knee jerk reaction was felt Tuesday when reports of North Korea’s missile flew of Japan was announced. However, this did not push the market lower the next day after the report. Instead, STI rebounded firmly towards 3270 level. With figures from US economic report, US market performed strongly on Wednesday night. This leads to strong opening by STI which brings STI above 3270. STI closes the short week at 3277.26 level; bringing 52.26pts down for the month of August.

It was being reported that North Korea did a larger scale of nuclear testing over the weekend. Tension has risen again. US government has yet to address on this report. Will this lead to another knee jerk reaction in the market to kick start the month of September? Will bearishness head the month of September?

Let’s look into the chart to anticipate the movements.

Trend: Uptrend formation, 20 wma up, MacD above 0.

Support: 3270(possible) (20 week MA), 3190, 3100 (50 & 200 week MA)

Resistance: 3355, 3450, 3530

Observations:

Candlestick – White candle. Bullish harami confirmed.

Histogram – Multiple Rs. MacD heading downwards. Bearish divergence still intact.

RSI – At 59.5%. Bearish divergence still intact.

Stochastic – At 16%. Oversold.

Bollinger Band – Bouncing off from mid band. Band contracting.

Conclusion:

It is clear that STI managed to hold firmly at its 20 week MA line at around 3245 level. With bullish harami being confirmed, it seems pretty certain that further rebound can be seen in the coming weeks. However, with the North Korea nuclear testing being reported, it can create a bearish impact on the market. 3270 support level might be shaken again. With this uncertainty, it is better to get further confirmations from the indicators before setting expectations.

 

The mid-term indicators are still on the bullish side but bearish divergence signals continue to persist on. RSI managed to hold above 50% level and this shows that the bullish momentum is being supported well currently. Shorter-term indicators are still showing bearishness despite a bullish closing last week. Stochastic is now in the oversold region but it has yet to show indication of a bullish crossover. Therefore, bearishness might continue to persist unless bullish takes lead in the market this week.

 

With these readings, STI might continue to face bearish despite a bullish closing for the week. Further bullish confirmation is needed despite confirmation being seen in the candles. With bearishness to be expected, it is important to look into the support levels. 3270 level will definitely continue to be the key level for this week. But the more important level will be the 20 week MA line at around 3245 level. This MA line will be the key factor to determine whether further bearishness will happen in the market. The next support level that STI will be seeking will be at 3190 level. If this level is being tested, it will be marking the end of STI’s uptrend momentum.

 

There is still hope for STI to continue its uptrend movement despite the possibilities of bearish movement triggered by the North Korea tension. If the market decides to push the North Korean tension aside, it should be able to continue its rebound from 3245 level. When this happens, it will bring STI towards its recent high of 3355 level. This resistance level is supposed to break easily as the STI is in an uptrend momentum. But before assuring the breakout to happen, let’s wait upon STI to reach that level first.

 

In conclusion, the Straits Times Index can face bearish pressure despite bullish closing last week. North Korea nuclear testing will definitely impact the market towards the bearish side this week. Hence, 20 week MA support line at 3245 level will be the key level this week. Breaking this level will indicate a high possibility of uptrend movement to end. 3190 support level will then be tested. However, bullish hope is still in the cards as long as it is able to hold above 3270 level week. Personally, I will look at how the market will play out this week before making more shrewd decisions.

 

What to watch out for this week:

1)      Holding above 3245 MA support level.

2)      Breaking of 3245 support level.

3)      Testing of 3190 support level.

4)      Testing of 3270 support level.

 

 Trading strategy to adapt right now:

-        Long traders can start looking for long opportunities only when there are bullish confirmations.

-        Shortists can consider on the short side if the support fails to hold.

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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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