Straits Times Index might start to build sideways momentum.

Straits Times Index might start to build sideways momentum.
Straits Times Index might start to build sideways momentum.

Bearish sentiment had broken the bullish streak of Straits Times Index last week. Lacking of fresh bullish catalyst caused buyers to stay out of the market for the week. Overwhelmed by concerns of possible weak economic data, many market participants preferred to take profit off the market to avoid any risk of uncertainty. Hence, selling pressure was seen during the week with particularly strong pressure happening on Wednesday. STI hit the lowest of 3377 level on Thursday as the market prepared itself for economic data announcement in US. The announcement turns out to be positive, which helped STI to recover it lost ground by rebounding 36.5pts during Friday. This strong rebound enables STI to close the week with only 24.9pts down; ending at 3424.64 level.

With the strong rebound on Friday, will Straits Times Index be able to continue its rebound momentum this week? Will there be further retracement opportunities this week?

Let’s look at 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


Candlestick – Black Hanging Man pattern.

Histogram – 1 R. No bearish divergence.

RSI – At 67.7%. No Bearish divergence. Just out of overbought.

Stochastic – At 85.1%. Overbought. No Bearish crossover.

Bollinger Band – Close to upper band. Band expanding.


Last week’s bearish movement is a clear indication that STI’s resistance at 3450 level is holding firmly. Bearish reversal candle was formed which increased the odds of retracement pressure towards support of 3355 level. The strong rebound that happened on Friday had prevented STI from hitting the desired retracement level. Such strong rebound shows that the underlying bullish momentum is very strong. There will always be ready buyers to support the market as long as there are retracement opportunities. With such situation, it is hard to determine whether STI will be retracing further or rebound for a higher level.


The mid-term indicators remain bullish despite the bearish closing last week. RSI had eased off from the overbought region which might trigger a possibility of further retracement action for this week. Shorter-term indicators are showing mixed signals currently. MacD turned bearish while Stochastic seems to be remaining bullish. It is also interesting to see that Stochastic remained in the overbought region despite RSI retracing below the overbought region. Therefore, it is hard to determine how STI will be behaving this week.


With uncertainty currently, it is good to look into the 2 possibilities that can happen in the market. Firstly, we should look at further retracement possibility. Retracement can happen when STI decides to return its Friday’s gains. Likelihood will increase if STI is to start trading bearishly on Monday this week. If this happens, STI will be seeking to test 3355 support level again. This support level will likely to be a firm support level as the 20 week MA line is approaching the level soon. With this strong support, STI will have limited downside currently.


If bearishness did not set in on Monday, bullish momentum can build further. This will mean that 3450 resistance level will be tested again. This time round, with the weakening overbought sentiment, STI might have a better opportunity to break the resistance level. Breaking this resistance level will have an upside indication towards 3530 resistance level. Going beyond 3530 level is unlikely for now. Hence, it will also mean that there will be lesser incentive for upside movement.


In conclusion, limited downside and upside coupled with lacking of strong bullish catalyst had created lesser incentive for market participants to participate in the market currently. Straits Times Index might be bounded by the tight range of 3355 – 3450 level currently. There is a possibility of breaking 3450 resistance level, but the further upside will then be capped by 3530 resistance level. Therefore, do expect unexciting movements in the market for this week.


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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