UK Election results push Straits Times Index higher

UK Election results push Straits Times Index higher
UK Election results push Straits Times Index higher

Yet again, the Straits Times Index faced another indecisive week as the market waits for the result of UK’s election. The results of the election were announced last Friday afternoon. It turns out to be a “hung” government which many speculated that it can lead to unstable political situation in UK. However, market reacted differently to the election result. Positive sentiments were seen at various markets as they deemed that the election result can spur better economic improvements in UK. Back to STI, the first 4 days of the week were trading flat with low trading volume. Market participants are staying cautious during these days but reacted once the UK election result is out. Bullish direction was influenced by the bullish opening of the European market. Hence, this leads STI to end the week with 14.18pts up. Ending at 3254.19 level.

Will UK’s election rally boost STI to go higher this week? What should we expect this week to be like?

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

Support: 3180 (20 week MA), 3100 (200 week MA), 2960 (50 & 100 week MA)

 Resistance: 3270, 3350, 3450

Observations:

Candlestick – Short white candle with lower shadow.

Histogram – Many Rs. Possible bearish crossover.

RSI – At 69.6%. Slightly below overbought.

Stochastic – At 66.2%. Possible bullish crossover forming.

Bollinger Band –Closer to upper line. Band squeezing.

Conclusion:

Straits Times Index had further confirmed its rebound from 3180 support level after last week’s movement. This shows that there is a good potential for STI to reach its resistance level at 3270 level again. However, it will still require further bullish strength for STI to push beyond 3170 resistance level. This will depend on the trading volume. Higher trading volume will show that the commitment level of the market to push STI to a higher level. Currently, it is lacking of it. Hence, it is hard to identify whether STI is able to go beyond 3270 level. Hence, it is important to understand the momentum that the market is riding on right now.

 

The mid-term indicators are still on the bullish side but it is running the risk of reversing. MacD might start to trigger a bearish crossover if STI fails to trade higher. RSI is slightly below the overbought zone currently. Bearish divergence signal is starting to show more clearly in both MacD and RSI. Hence, the risk of reversal is higher right now. Shorter-term indicators are on the bearish side currently but Stochastic is starting to show a possible bullish crossover. Bullish signal might be triggered if further bullishness is seen this week.

 

With these readings from the indicators, it is still quite hard to determine how the market will behave this week. It seems that the underlying momentum is losing strength while the shorter-term strength is gaining. This means that STI will likely to gain further bullish momentum this week but might be capped by its resistance level. Further bullish strength can only be gained if the longer-term indicators start to shift to the bullish side. Therefore, STI will likely to attempt to test its resistance level at 3270 level first before attempting to head higher. Going beyond this resistance level will likely to invalidate the bearishness of the indicators.

 

If 3270 resistance level remains firm, it will mean that the bearish underlying is firm. This will also mean that STI will be retracing after testing 3270 level. When this happens, STI will be heading back towards its support level at 3180. Once reaching that level and if it refuses to go lower, it will mean that this action will confirm that STI will be undergoing sideways movement. Breaking 3180 level will give an indication of a possible trend reversal towards the downside.

 

In conclusion, the Straits Times Index continues to face bearish risk despite a strong closing last week. In this week, it will probably continue to attempt to head towards its resistance at 3270 level. Breaking this resistance level will help STI to continue its bullish trend. However, if it fails to break, the trend will be turning into either a sideways or downtrend. Breaking 3180 support level will cause STI to face a possible bearish reversal. Therefore, it is important to continue to monitor these key levels this week.

 

What to watch out for this week:

1)      Testing of 3270 resistance level.

2)      Breaking of 3270 resistance level.

3)      Testing of 3180 support level.

4)      Breaking of 3180 support level.

 Trading strategy to adapt right now:

-          Long traders should stay cautious while being ready to get out of the market.

-          Shortists should stay sidelines till firm bearish confirmation.

 

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