Straits Times Index set for retracement actions

Straits Times Index set for retracement actions
Straits Times Index set for retracement actions

Straits Times Index had a volatile week last week as it attempted to break its resistance at 3450 level. In the early week, STI managed to maintain break this resistance level and maintained above 3450 level. This breakout proved to be unsustainable as sellers were seen repeatedly trying to push STI back below 3450 level after the breakout happened on Monday. Eventually, announcement of interest rate hike in China and reports of future interest rate hikes by Fed US spooked the market. Confidence crumbled on Thursday caused sharp selling pressure to happen. On Friday, market participants were still facing the aftershock of the sell off on the previous day. Due to these sharp selling pressure at the end of the week, STI was seen closing 7.7pts down for the week, ending at 3416.94 level.

Will selling pressure continue this week? How low will it go?

Let’s find out from the chart of STI.

Trend: Uptrend formation, 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 – Black Shooting star pattern.

Histogram – 2 Rs. No bearish divergence.

RSI – At 75.1%. No Bearish divergence. Back into overbought.

Stochastic – At 72.3%. Out of Overbought. Bearish crossover formed.

Bollinger Band – Closer to upper band. Band expanding.

Conclusion:

Expectation of sideways market for STI was nearly compromised last week as STI managed to stay above 3450 resistance level for 3 days. At the end of the week, the strong resistance at 3450 level prevails. This further confirms that STI is still not ready to break 3450 resistance level and is consolidating before further upside movement can occur. STI had been trading in this tight range between 3355 – 3450 levels for 2 months. The main concern right now is whether this consolidation is for further upside movement or preparing for a deeper retracement movement.

 

The mid-term indicators remain bullish and are still lacking of signs of weakness. It is interesting to see RSI returning back to overbought region despite a bearish closing last week. However, no bearish divergences are detected. Shorter-term indicators are clearly showing the bearish side. Both Histogram and Stochastic had confirmed the bearish momentum and will likely to continue for this week. Hence, it is more likely for the market to skew towards the bearish side for this week.

 

As bearishness will more likely to set in this week, STI should be heading towards its lower range of the sideways range. Support at 3355 level will likely to be tested as long as strong bearish pressure sets in. This support level should be a firm support level as 20 week MA line is getting closer to the 3355 support level. Therefore, downside will be rather limited for now. Although breaking beyond 3355 support level is unlikely for now, breaking 3355 support level will be an indication of a deeper retracement for STI. The next support level that it will test is at 3270 level where 50 week MA line is heading towards.

 

Retracement actions are usually a setup for further upside movement in an uptrend condition. As long as STI is able to form a support at either 3355 or 3270 level, higher low can be formed. By then, rebound actions can lead STI towards 3450 resistance level again. This time round, breaking 3450 resistance level should be easier. This breakout can allow STI to head towards the next resistance level at 3530 level.

 

In conclusion, bearish sentiment is set to continue to happen in STI. Upside will still be capped by 3450 level while it will attempt to head lower. Support is at 3355 level and this level will be the target for the bearish momentum. Deeper retracement can only happen when STI breaks 3355 support level. Breaking this support level will be tough. So it is more likely for STI to consolidate at this support level at most 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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