Straits Times Index's trading range will tighten further as it trades lower. | Jay Chia - Your Financial Mentor

Straits Times Index's trading range will tighten further as it trades lower.

Straits Times Index's trading range will tighten further as it trades lower.
Straits Times Index's trading range will tighten further as it trades lower.

It was another bearish week for Straits Times Index as uncertainties of the global economic outlook and oil prices continue to linger on market participants’ mind. The week was seen trading in a tight range. It started with an attempt to rebound but it failed to sustain the rebound the next day as it faced resistance at around 2840 level where the 20 day MA line is. When the rebound failed to sustain, the support at 2815 level also failed to sustain. For the rest of the week, STI attempted to recover its support level at 2815 level but it failed to do so. Furthermore, there was also lacked of selling pressure during the week. Due the tight trading range, STI’s trading volume was also seen declining. For the week, STI lost 10.17pts and close at 2808.32 level.

Many might have thought that STI is starting to consolidate last week and might prepare for a rebound action. Will it be ready to rebound this week?

Let’s identify the signs of rebound from the chart.

Trend: Possibility of switching to uptrend, 20 wma turning flat, MacD below 0 level.

Support: 2740 (20 week MA), 2680, 2540

 Resistance: 2815, 2900, 2950 (50 Week MA)

Observations:

Candlestick – Short black candle.

Histogram – Bearish signal confirmed. MacD closing to 0 line

RSI – At 46.1%. Facing RSI resistance.

Stochastic – At 58.7%. Out of overbought.

Bollinger Band –Closer to mid band. Band squeezing.

Conclusion:

STI’s broken down of 2815 support level had confirmed its possibilities of heading for a much lower support level. The next support level that STI will attempt to head towards is at 2740 level. It seems pretty reluctant to go lower last week. This might give some clues that STI does still have some bullish underlying to prevent any sharp fall. However, in order for strong confirmation of bullish underlying, STI must first be able to recover back above 2815 level this week. Otherwise, it will still be facing bearish pressure until its support at 2740 level. The indicators should give us a clearer understanding of what will likely to happen this week.

 

Mid-term indicators’ momentum reversal possibilities are still high right now. MacD continues to head toward the zero line despite a continuation of 3 bearish weeks. There are no signs of bearish crossover yet and hence, it implies that there might still be bullish strength to reverse the market. Shorter term indicators are also on the bearish side. They are still fresh in the bearishness and this will likely to lead to further bearish momentum to happen this week. There are no signs of bullishness currently and hence, STI will be more likely to face bearish pressure this week.

 

With assurance from the shorter term indicators, STI will likely to continue to face selling pressure for this week. Hence, STI will likely to continue its attempt to test its next support level at 2740 level. However, it is also unlikely that STI will be facing strong selling pressure currently as there is strong bullish underlying which can attempt to reverse the current trend of STI. It will be good to stay prudent by not exposing on the downside.

 

As the possibilities of trend reversal is still intact, we cannot rule out the possibilities of STI attempting a rebound this week despite breaking its support level at 2815 level. A rebound can happen again if STI is able to recover above its support level at 2815 level this week. If this happens, a higher low formation will be formed and this will then lead to further upside movement. Thus, confirming the uptrend formation.

 

In conclusion, the Straits Times Index will likely to continue to face bearish pressure this week. The bearish pressure will likely to persist till it reaches the support level at 2740 level or it recover itself above 2815 level. Selling pressure is unlikely to be strong this week as the underlying bullishness will likely to continue to be firm. Therefore, one can expect this week to be another tight trading range week with higher chances on the bearish side. The trading range might be seen between 2740 – 2815 level for this week.

 

What to watch out for this week:

1)      Testing of 2740 support level

2)      Breaking of 2815 resistance level

3)      Breaking of 2740 support level

4)      Testing of 2900 resistance level

 Trading strategy to adapt right now:

-          Long traders should consider to buy when there is bullish reversal at support level

-          Shortists should stay cautious

 

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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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