STI is running the risk of uptrend reversal

STI is running the risk of uptrend reversal
STI is running the risk of uptrend reversal

Again, STI experienced a strong start for the week but test 3080 resistance level on last Monday. The strong start comes with easing of economic tension but the bullishness was soon to ease off. STI failed to break 3080 despite its attempts for 2 days in a row. STI started to retrace before the national day holiday after China announced with economic data. This sparked another fear that the slowing economy of China might affect Asian economies; this lead STI to return 15pts of gains and close near the closing of the previous week. The regional market was uneventful during the national holidays and this help STI to avoid further drop last Friday. Last Friday’s market action ended flat as market participants were adopting cautious approach. Last Friday’s night, DJI closed with 42.76pts higher. Will STI be able to retain the current uptrend momentum? How far can STI retrace this week?

Let’s get the answer from STI’s chart.

Trend: Uptrend, 20ma poise up, MacD above 0

 

Support:  3030(20ma), 3000, 2970

 

Resistance: 3080, 3130, 3160

 

Observations:

Candlestick – Small white candle.

Histogram – 2Rs. Bearish divergence seen.

RSI – At 59.6%. Bearish divergence seen.

Stochastic – At 56.6%. Bullish crossover yet to be formed.

Bollinger Band – Between mid and upper band. Band squeezing but fail to expand.

 

Conclusion:

Testing of 3080 resistance has shown that STI is indeed still in an uptrend movement. Its failure to break 3080 resistance level has proven that this resistance level is a strong one and its retracement actions for the last 2 trading session has shown that a higher high formation has been formed. Therefore, since a higher high is being formed, what comes next should be a higher low formation if the uptrend is still intact. In order for a higher low formation to form, what is required to observe is the slowing down of short-term momentum and the immediate support level. Hence, let’s look at the indicators first, to determine the current momentum of STI.

 

The mid-term indicators continue to show bullish momentum despite the retracement last week. As noted that there is bearish divergence in RSI last week, the Histogram also started to show bearish divergence signs. This has further indicated that the current uptrend momentum is losing its strength and will more likely to reverse its trend. In the short-term, the momentum is definitely bearish one as the Stochastic and Histogram are not in a bullish condition. There is yet to show signs that the short term momentum is reversing. Therefore, the retracement momentum will likely to continue early this week while there is a risk of trend reversal. 

As there is a risk of trend reversal, it is important to determine which the key support levels that STI must hold are, in order to retain its current uptrend movement. The current immediate support level for STI stands at 3030 level. 3030 support level has confluence with 20ma support line which will likely to strengthen this support level. This support level will be the best level for STI to form a higher low position in order for it to continue its uptrend movement. However, if the selling pressure persists this week, 3030 level might not hold and STI might retrace further towards the next support level. The last possible level for STI to form a higher low will be at 3000 level. If STI fails to hold at 3000 level, it is very likely that the uptrend movement has changed.

 

Trend reversal will occur when STI breaks 3000 level. If this happens, STI will either go sideways or form downtrend. If STI test 2970 level and bounce up, sideways movement will be more likely to form. However, if 2970 support level fails to hold, it will mean that the recent higher low formation has been broken and STI will be going for a lower low formation. Lower low formation marks the creation of downtrend movement. Despite bearish outlook for STI, there is still hope for STI to continue its uptrend movement while ignoring the bearish divergence signal. In order for STI’s uptrend to continue, STI must first bounce off either 3000 or 3030 support level and break its immediate resistance of 3080. This market action will lead STI to test the next resistance at 3130 level.

 

Overall, STI is still in an uptrend momentum currently but it is definitely weakening. STI is very likely to retrace further during the start of the week as the short-term indicators were bearish. One should not be sure that STI is bound to reverse its current uptrend to downtrend as there is no downtrend formation yet. Chances of the trend reversal will increase if STI breaks these 2 support level, namely, 3030 (immediate) and 3000 levels. 3030 immediate support level is deemed to be a very strong support level where higher low formation is more likely to form there. 3000 level will be the key level to hold as it will determine the trend reversal point. 2970 support level will help us to determine if STI is reversing for a sideways formation or downtrend formation. Therefore, STI is coming into a crucial week where it can help us conclude the upcoming trend that might last for weeks.

 

 

What to watch out for this week:

1)      Testing of 3030 support level

2)      Testing of 3000 support level

3)      Testing of 2970 support level

4)      Testing of 3080 resistance level

 

 

Trading strategy to adapt right now:

-          Long traders can take very cautious long positions with short upside targets when STI reaches 3030 level.

-          Shortist should take some profits if short position is initiated at high. Adding new short position is unwise now.

 

 

*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.

Please consult your respective advisers.