Strong bullish momentum prevents STI from retracing.

Strong bullish momentum prevents STI from retracing.
Strong bullish momentum prevents STI from retracing.

Last week, STI started the week bearishly with a strong gap down and bearish intraday movement. The drop was due to weak China economic numbers. It was thought that STI would start its retracement towards 2910 level but instead, STI refused to drop further. Speculations of China releasing stimulus plans to help the current weaken economy was being heard. Traders were bullish about it and started to buy into the market hoping to benefit from the expectations. This pushed STI above the gap resistance of 2987 level and attempted to test 3000 level. Eventually, STI managed to close at 2995 level on Friday with 17.01pts higher for the week. Last Friday night, DJI closed strongly with 203.82pts higher. Is STI going to trade higher this week? Is it alright to have  such a short retracement last week?

Let’s look at the STI’s chart for the answers.

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

 

Support:  2950, 2910(20ma &100ma), 2850 (50ma & 200ma)

 

Resistance: 3000, 3030, 3070

 

Observations:

Candlestick – White candle

Histogram – Many Rs. No bearish divergence yet.

RSI – Around 77.1%. Overbought. No bearish divergence yet.

Stochastic – Around 83.4%. Overbought. Bullish crossover seen recently.

Bollinger Band – Between mid and upper band. Band opening up.

 

Conclusion:

STI retraced slightly last week and it broke the minor support of 2950 level and attempted to head towards 2910 level. However, it rebounded back above 2950 level the next day and this rebound had confirmed that STI formed a higher low formation. STI even broke the recent high of 2980 level quickly and also broke the upper gap resistance level of 2987 level. Breaking of these resistances confirm that STI is indeed in a very strong bullish uptrend currently. Many might cheered with this bullishness but those whom are waiting to execute long position at support level might have failed to catch the upside ride. The main worry now is whether STI can sustain its upside despite such a short retracement? Let us look into the indicators to understand how sustainable the upside will be.

 

The mid-term indicators were still showing bullish strength for the whole of last week and there were no signs of weakness in them. However, RSI is now backed into the overbought region and this might cap STI’s upside movement. Short-term indicators were seen to be having mixed signals. The Histogram was still showing bearish momentum despite prices going up for the past few sessions. However, Stochastic triggered bullish signal last week which indicated bullish strength going forward. This bullish signal had helped Stochastic to re-enter the overbought region again and thus, signalling a possible capped upside. Since the market is in overbought situation, it is important to identify which resistance levels will prevent STI from going higher.

 

As STI have exceeded the gap resistance between 2950 – 2987 levels, STI will be heading for the next resistance level. This gap resistance level will no longer be valid and will not provide support for STI. The next resistance level for STI stands at 3000 level which STI did not managed to test its last week. 3000 resistance level can be quite a strong resistance level as it is a natural psychological barrier and it confluences with a number of highs that was seen in the past. STI might struggle to break this resistance level this week. However, If STI’s bullishness is strong, this resistance level might be broken and STI can head to the next resistance level of 3030 level. This resistance level is an important resistance level where it will determine whether STI will be going of a longer term uptrend. 3030 level is the higher high level of STI’s weekly chart. If 3030 is broken, it will mean that the weekly chart is going for a higher high and weekly chart’s uptrend will continue.

 

Despite bullish possibilities to be happening for this week, it is also important to understand where STI’s support level is. The immediate support level for STI stands at 2950 level. But the current strongest support level stands at 2910 level. 2910 support level will now be an important support level for STI currently as breaking it might break STI’s uptrend momentum. Therefore, these are the key support levels for STI to maintain its uptrend movement.

 

In conclusion, STI can maintain its uptrend momentum as long as its support level at 2910 level holds. Current bullish momentum can still be sustainable for this week but the overbought condition is likely to cap STI’s upside. The immediate resistance for STI stands at 3000 level and it can be a tough level to crack. Short retracement can be expected when 3000 level is being test and it will likely to hold at 2950 support level. If STI is able to maintain its strength between 2950 – 3000 levels, it will likely to test the next resistance level at 3030. With corporate earnings season to start off this week, volatility is expected to be affecting the market this week. One must trade with caution and pick counters that have more stable earnings to trade.

 

 

What to watch out for this week:

1)      Testing of 3000 resistance

2)      Testing of 2950 support level

3)      Testing of 3030 resistance level

4)      Testing of 2910 support level

 

 

Trading strategy to adapt right now:

-          Long traders can adopt break out strategy to enter long position but must be aware of the result announcement dates. Avoid entering long position if its results are announcing soon.

-          Shortists should stay sidelines for now as the trend is very bullish.

 

 

*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.