Straits Times Index faced 3355 resistance level.

Straits Times Index faced 3355 resistance level.
Straits Times Index faced 3355 resistance level.

The Straits Times Index faced a week of selling pressure as tension arises between North Korea and US on Friday. The week started with lack of catalyst to push the market higher. Market participants were more eager to take profit off the market after numerous index components went ex-dividend. With some buyers support, STI was seen holding firmly above 3300 level till Thursday. When reports of North Korea’s threats to fire missile to Guam Island, the market reacted in fear. On Friday, STI opened with a gap down action which caused STI to trade below 3300 level. It got close to 3270 support but never get to test it. With these actions, STI closed at 3279.72 level with 46.8pts down for the week.

With this magnitude of drop, many market participants start to be concern. Will the market start to drop further or will it resume its uptrend movement after this retracement?

Let’s derive some answers from the chart.

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

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

Resistance: 3355, 3450, 3530

Observations:

Candlestick – Long black candle.

Histogram – Turned R. Bearish signal triggered. Bearish divergence still intact.

RSI – At 57.9%. Bearish divergence still intact. Out from Overbought.

Stochastic – At 73.3%. Just out from overbought. Bearish crossover formed.

Bollinger Band – Heading towards mid band. Band expanding.

Conclusion:

It is now clear that the resistance level at 3355 level is holding firmly after last week’s bearish movement. This means that higher high formation has formed and STI is now attempting to form a higher low formation. As expected, STI will head towards its support level at 3270 level to test it. This is a likely support level for STI to test. But it has yet to be tested. With this, it is also important to check with the indicators to determine whether this support level will be tested this week.

 

The mid-term indicators are still staying on the bullish side despite strong bearish movements happening last week. However, the bullish momentum is still facing the risk of bearish divergence despite its uptrend continuation a few weeks ago. Shorter-term indicators are now switching to the bearish side currently. Overbought situation has also eased off after last week’s movement. Hence, shorter-term bearish momentum will likely to continue this week.

 

With bearish expectations for this week, it will be very likely for STI to seek its support at 3270 level to test it. This support level is considered to be a strong support level, therefore, STI will likely to hold firmly at this support level. But if the bearish momentum is strong, STI might break 3270 support level even. Breaking of this support level will mean that STI will be seeking for its next support level. The next good support level where STI can test will be the 20 weekly MA line. This 20 weekly MA line is currently standing at around 3230 support level. Therefore, this support level might be another possibility for STI to test this week.

 

But if these scenarios failed to happen this week, it will only indicate that the underlying bullish momentum is strong. Given that a lot of tension between North Korea and US had eased off during the weekend, the market might not react with further bearishness. This means that if STI is able to hold above 3270 level this week, there is a possibility that higher low will be formed. With higher low forming, STI will then attempt to head back to its immediate resistance level at 3355 level. If this rebound is happening, it will mean that the uptrend momentum will continue and this will eventually lead to a breakout of 3355 resistance level; Seeking the next resistance level at 3450 level.

 

In conclusion, the Straits Times Index might face continuation of bearishness this week. However, the downside is getting limited as it is close to the strong support at 3270 level. This support level will likely to hold well and this can lead to a rebound to happen. If STI is able to hold above 3270 level this week, a rebound towards 3355 resistance level can happen. Once this rebound happens, it can lead STI towards the next resistance at 3450 as long as the resistance level at 3355 level breaks. But if STI fails to hold above 3270 support level, further downside attempts will lead STI towards the 20 week MA line at 3230 level.

 

What to watch out for this week:

1)      Holding above 3270 support level.

2)      Testing of 3355 resistance level.

3)      Breaking of 3270 support level.

4)      Testing of 3230 support level.

 

 Trading strategy to adapt right now:

-        Long traders can start looking for long opportunities.

-        Shortists should avoid the market.

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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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