Straits Times Index entering oversold zone | Jay Chia - Your Financial Mentor

Straits Times Index entering oversold zone

Straits Times Index entering oversold zone
Straits Times Index entering oversold zone

Straits Times Index managed to halt its decline after 2 weeks of substantial drop. Companies’ earnings report continued last week but most of the index component had finished reporting their earnings. Market participants seem to start digesting the new information from the latest earnings report which caused majority of them to stay sideline. Buying attempts were seen during the week but very often, they met selling pressure whenever it attempted to reach 2760 level. Therefore, STI was seen trading between a tight range of 2713 – 2766 levels during the week. Indecisive actions were definitely seen during the week. Hence, STI closed the week with only 4.11pts up. Ending at 2734.91 level.

The key question many are asking right now: “Have STI finished its decline after last week’s movement?” Let’s look at the chart to determine the likely direction.

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 – Black star like candle.

Histogram – 3Rs. MacD close to 0 line

RSI – At 56%. Near 50% line.

Stochastic – At 14.1%. Entering oversold.

Bollinger Band –At mid line. Band flattening.

Conclusion:

STI is clearly showing indecisive action last week. It is good to see that STI’s decline is coming to a halt after 2 days worth of decline. With this action, it can also mean that STI might be forming a support around 2740 level. But it also can mean that it is merely consolidating to make sure that 2740 support level is broken before it will attempt to slide down further. Therefore, it is very uncertain on whether STI is forming a new downtrend or it is undergoing a whipsaw action while forming its uptrend formation. Various possible scenarios should be explored before we can draw conclusive decisions.

 

Mid-term indicators continued to show indecisiveness despite skewing towards the bearish side.  Further decisive movements are needed before the Mid-term indicators can be clear. Shorter term indicators had extended their bearishness last week. Stochastic is now entering oversold region which indicates that the bearish momentum is starting to get more limited. However, there is no clear indication of rebound action yet. Therefore, further selling pressure might persist early this week.

 

With the possibilities of further selling pressure to start this week, it is still important to determine the support level of STI. STI’s support level is currently at 2670 level. This support level has yet to be tested last week. Hence, there is a possibility that STI might seek to test this support level this week. However, based on the oversold situation, STI might not be able to break this support level. This support level will likely to hold firmly this week. Even if it breaks, the next support level is near. 2620 level will likely to be the last line of defence.

 

Last week’s movement also gave some hope for the bullish side. The rebound attempts during the week can also signal a consolidation movement to form its support at around 2740 level. However, the main problem that STI is facing right now is the 20 weekly ma line. It is how trending at 2760 level which seems to be resisting STI’s upside attempt. A rebound can only happen if STI is able to break this resistance line. Therefore, if STI is able to trade higher than 2760 level this week, it will mean that the downside has ended. After which, STI will be seeking for its immediate resistance at 2800 level.

 

In conclusion, the Straits Times Index is likely to start the week with some bearish pressure. However, rebound attempts will still likely to happen this week. In order for the rebound to be successful, STI must first be able to break its 20 week MA line at 2760 level first. Upon achieving that, STI will be heading towards its resistance at 2800 level. However, if it fails to break the MA resistance line, selling pressure will likely to continue to set in to push STI towards its support at 2670 level.

 

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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*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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