Straits Times Index suffering "Sell in May" effect. | Jay Chia - Your Financial Mentor

Straits Times Index suffering "Sell in May" effect.

Straits Times Index suffering "Sell in May" effect.
Straits Times Index suffering "Sell in May" effect.

Straits Times Index experienced another week of sell down as many quoted the euphoric phenomenon called “Sell in May and go away”. Some blamed the sell down to be triggered by concerns of world economic situation while some blamed the weak corporate earnings that were announced for the past few weeks. Personally, I deemed the weak market sentiment to be because of the weak corporate earnings that are being announced. On top of that, numerous component stocks had gone “Ex-dividend”; a pattern that I usually see it happening during the May period. With all the various reasoning, STI failed to sustain its important support level at 2800 level. Once this support level broke, traders will rush to exit the market. Next support level at 2740 level was also being tested. On Friday, this support level failed to hold and it broke slightly. Hence, STI ended the week with 107.72pts down, closing at 2730.8 level.

With this bearish momentum continuing, many are concerned on how low STI will go this time round. Hence, we should use the chart to determine on the different possibilities.

Trend: Uptrend formation failed to sustain, 20 wma starting to turn down, MacD near 0 level.

Support: 2670, 2620, 2530

 Resistance: 2740 (20 week MA), 2800, 2900

Observations:

Candlestick – Long Black Candle.

Histogram – 2R. MacD close to 0 line

RSI – At 55.5%. Heading towards 50% line.

Stochastic – At 40.3%. Bearish crossover confirmed.

Bollinger Band –At mid line. Band flattening.

Conclusion:

STI had broken another support level at 2800 level last week. This is an important support level to determine whether STI will be retaining its uptrend formation. Since it broke last week, it will only mean that STI will not be continuing its uptrend formation. With this, it will also mean that STI could be starting to form a downtrend. Lower low will likely to be forming next and hence, it is important to determine the support level where STI will likely to form the lower low. We will have to check with the indicators to determine the odds of rebound at support level before we can draw conclusive possibilities.

 

Mid-term indicators are starting to skew back towards the bearish side again after last week’s bearish movement. This might mean reverting back to bearish momentum. Shorter term indicators are obviously on the bearish side. It will also mean that the bearish pressure will likely to continue for STI. Thus, preventing STI from advancing for a rebound movement.

 

With the bearish sentiment likely to dominate the market, it will mean that STI might not be able to recover back its support at 2740 level. Failure to recover this level will mean that STI will be seeking the next support level. Next support level stands at 2670 level. Although, this might be a good support level for STI to rebound, there is another strong support level. 2620 support level is a stronger support level. This support level will be a better candidate for a rebound to happen.

 

Despite looking at the bearish possibility, it is important to look at another possibility. Traditionally, May can be a very volatile period that has lots of whipsaws. Hence, if STI is able to quickly recover its support at 2740 level, a rebound can also happen. 2800 resistance level will then be tested. This resistance level is likely to cap STI’s upside as downtrend formation possibility is high right now. However, if 2800 resistance level fails to hold, it will throw the charts to a state of confusion which will then be hard to determine the next movement.

 

In conclusion, the Straits Times Index is likely to form downtrend currently. With 2740 support level being broken, STI will then be heading towards its next support level at 2670 level. 2670 support level might not be able to hold well and hence, STI might be seeking for its next support level at 2620 level before it can rebound. Upside will be capped by 2800 resistance level if STI attempts to recover its support at 2740 level. Volatility is likely to continue this week; this makes it harder to anticipate how the market will behave.

 

What to watch out for this week:

1)      Testing of 2670 support level

2)      Breaking of 2670 support level

3)      Testing of 2620 support level

4)      Testing of 2800 resistance level

 Trading strategy to adapt right now:

-          Long traders should look for rebound opportunity.

-          Shortists should take profit on the way down.

 

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