Straits Times Index nearing the key resistance level of 3355

Straits Times Index nearing the key resistance level of 3355
Straits Times Index nearing the key resistance level of 3355

Straits Times Index continued its bullish streak for the 3rd consecutive weeks as market confidence starts to build up. Buoyant by improving economic situation around the world, STI was able to trade closely to this year’s high of 3354 level. This level has yet to be tested but it is likely to be tested soon. During the week, volatility was seen daily as buyers were seen hassling with the profit taking sellers. Buyers were seen winning daily as the market closed higher every day. However, such market actions made some market participants worried. Hence, there was lacking of strong bullish movements during the week. These actions lead STI to close at 3340.73 level with 21.62pts up.

With profit taking attempts seen during the week, will STI continue to seek for a higher level this week?

Let’s determine the bullish state of STI through the chart.

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

Support: 3270 (20 week MA), 3190, 3100 (50 & 200 week MA)

Resistance: 3355, 3450, 3530

Observations:

Candlestick – Short white candle with longer upper shadow.

Histogram – 3 Gs. MacD with possible bullish crossover. Bearish divergence still intact.

RSI – At 57.7%. Bearish divergence still intact. Staying above 50% line.

Stochastic – At 95.2%. Overbought. No bearish crossover yet.

Bollinger Band – Testing upper band. Band expanding.

Conclusion:

This bullish streak had further reaffirm that STI might be attempting to form its uptrend movement. However, what is lacking right now is a breakout for a higher high formation. The breakout level for upside confirmation is at 3355 level. This key resistance level is now very near which causes profit taking actions to happen last week. However, the market is still able to end up bullishly. Therefore, it also indicates that there will still be possibility of breakout action if the bullish momentum is strong. So, what will be important right now is to determine whether STI’s bullish momentum will be strong enough to break this key resistance level.

 

The mid-term indicators’ momentum continued to show bullish momentum which will likely to help STI to seek for a higher resistance level. However, RSI seems to start losing its strength despite the market being able to close higher. What is important for RSI right now is to maintain above the 50% level. Shorter-term indicators continued to show bullish readings. This time round, Stochastic is now in the overbought region which can cap STI’s upside. STI is also now testing Bollinger’s upper band which also shows upside limitation. Therefore, STI’s bullish momentum might have an opportunity to loss its strength as overbought condition starts to show.

 

With overbought condition hinting the upside limitation, one should be prepared for profit taking actions to happen in the market. This will also mean that the resistance at 3355 level will likely to hold and prevent STI from confirming its uptrend formation. Therefore, we should plan for another alternative uptrend formation scenario since the underlying momentum is still bullish. Hence, if selling pressure appeared this week, STI will likely to attempt to seek its support level. Immediate support level stands at 3270 level. 3270 level is a strong support level as it is the breakout level to reverse the possibility of downtrend formation. Furthermore, 20 week MA support line confluences with this level. Hence, it is hard for STI to break this support level currently.

 

If STI is to hold firmly at 3270 support level, it will indicate a possible rebound which can form a higher low formation. Higher low formation is part of uptrend formation. Therefore, rebounding at 3270 level is clear indications that uptrend are forming. This will lead STI to attempt to break 3355 level. Regardless of whether STI decides to retrace towards 3270 level or breaking 3355 resistance level straight, both scenario will clearly show that STI is forming uptrend. Uptrend formation will lead STI towards 3450 level resistance or beyond.

 

In conclusion, the Straits Times Index is still maintaining its bullish momentum well currently. However, the upside of STI seems to be capped right now as profit taking actions will likely to occur due to overbought condition. Hence, if STI is unable to sustain its gains after testing its resistance at 3355 level this week, retracement actions are to be expected. Immediate support level at 3270 level is a very important support level as it will further determine the uptrend formation possibilities for STI. This support level is expected to hold currently. After which, STI will have the possibility to break 3355 resistance level which will push STI to a further resistance level of 3450 level.

 

What to watch out for this week:

1)      Testing of 3355 resistance level.

2)      Testing of 3270 support level.

3)      Breaking of 3255 resistance level.

 Trading strategy to adapt right now:

-        Long traders can position for long trades with partial profit taking at resistance level.

-        Shortists should avoid having short trades.

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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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