Straits Times Index hovering at resistance of 3450 level.

Straits Times Index hovering at resistance of 3450 level.
Straits Times Index hovering at resistance of 3450 level.

It had been a rather flat week for Straits Times Index as the market attempts to find reason to trade higher in fear of higher tax reforms in US. Many market participants were staying sidelines at the moment as they wait for more clarity in the market. Despite the cautious mood, STI is still able to test its resistance level at 3450 last Friday. STI managed to break 3450 resistance level momentarily during the day as profit takers entered the market, avoiding positions over the weekend. With this cautiousness, STI closed the week with 7.39pts up at 3449.54 level.

As the Straits Times Index tested the resistance level, will STI be able to break through this level or will profit taking dominate the market?

Let’s determine from the chart.

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

Support: 3355, 3270 (20 week MA), 3190, 3100 (50 & 200 week MA)

Resistance: 3450, 3530, 3630

Observations:

Candlestick – White spinning top candle.

Histogram – 2 Gs. No bearish divergence.

RSI – At 73.2%. No Bearish divergence. Overbought.

Stochastic – At 81.2%. Overbought. No Bearish crossover.

Bollinger Band – Testing upper band. Band expanding.

Conclusion:

After weeks of attempts, STI is now able to test its resistance level at 3450. This indicates that the bullish trend is still firm and will have potential to reach out for higher levels. However, resistance level might prevent upside for STI as uptrend consist of higher high formations. So, at this resistance level, it is possible for STI to form higher high formation by retracing for a higher low formation. Based on the candle formed last week, it is hard to determine whether STI will be able to break this resistance level. Spinning top candle indicates that there is resistance at this level but it does not shows strong bearishness in the market yet. Therefore, it is also important to gain clues from the indicators before we can better determine the direction of the market.

 

The mid-term indicators are consistently on the bullish side for weeks. This set bullish foundation for STI currently. However, after last week’s movement, RSI is starting to trend in the overbought zone; signalling a potential downside risk. But there is no strong bearish confirmation yet. Shorter-term indicators are still on the bullish side currently. No bearishness is being sighted currently. However, indication of overbought is still seen in Stochastic which can limit STI’s upside. Overall, bullishness is still being read but upside can be limited as the condition is now overbought.

 

Although bullishness is likely to continue to happen this week, the overbought readings are something to be concern of. What is lacking right now is a bearish movement that will trigger further selling pressure. If STI is unable to break 3450 resistance level this week, bearishness can start to set in. What we should watch out is bearish closing for the week. If STI is to close lower this week, bearish signal will likely to be triggered in the indicators. Bearish signal in overbought situation is more likely to bring in bearish movements in the market.

 

However, the market underlying momentum is still bullish. Hence, there is also chance for STI to break this resistance level at 3450. Breaking 3450 resistance level will lead STI towards the next resistance level at 3530 level. This kind of movement will bring STI deeper into the overbought zone which will greatly increase the odds of reversal. Therefore, strong bullish movements are unlikely to happen even if the bullish breakout happens.

 

In conclusion, the Straits Times Index is now ready to form higher high formation in order for a better continuation of its uptrend movement. Overbought condition is currently obvious and this will likely to limit STI’s upside. Resistance level at 3450 level will likely to hold this week. What is lacking right now short-term bearish movement to happen. But further upside movement can also occur if STI is able to start trading and maintaining above 3450 level. Therefore, this week will be an important week as it will determine whether STI will be retracing or going higher in the coming weeks.

 

What to watch out for this week:

1)      Testing of 3450 resistance level.

2)      Breaking of 3450 resistance level.

3)      Testing of 3270 – 3300 support levels.

4)      Testing of 3530 resistance level.

 Trading strategy to adapt right now:

-        Long traders partial profit taking can be adopted.

-        Shortists can look for quick trade once bearishness is confirmed.

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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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