Bearishness set to continue to end 2017

Bearishness set to continue to end 2017
Bearishness set to continue to end 2017

Merry Christmas and Happy New Year to everyone! Today’s weekly analysis will be the last of the year before we embark to tackle 2018’s market.

Straits Times Index faced another bearish week as the market comes to an end to celebrate Christmas day. Selling pressure was seen happening throughout the week as short-term bearish pressure continues. Trading volume was on the low side as it always happens during the Christmas period. Hence, there is no room for panic as the selling pressure is not strong. On Thursday, STI failed to hold above the 50 day MA line at 3390 level. This indicates a possible reversal in trend in the daily chart. With these movements, STI end the week at 3385.71 level; dropping 31.23pts for the week.

With possible trend reversal in the daily chart, how will STI react to end the year of 2017 this Friday?

Let’s evaluate STI’s weekly chart.

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

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

Resistance: 3450, 3530, 3630

Observations:

Candlestick – Black candle.

Histogram – 3 Rs. No bearish divergence. Possible MacD bearish crossover.

RSI – At 72.7%. No Bearish divergence. Overbought.

Stochastic – At 46.4%. No bullish crossover yet.

Bollinger Band – Heading towards mid band. Band contracting.

Conclusion:

Another week of bearishness has further confirmed the retracement action that STI is performing right now. It is expected that STI will be retracing towards its support level at 3355 level. Therefore, it is not surprising for STI to be heading towards 3355 level last week. What is crucial right now is whether STI will be holding at the support of 3355 or breaking 3355 which can lead to a deeper retracement. Indicators should be able to give us some clues on the possibilities.

 

The mid-term indicators are still on the bullish side but MacD start to show signs of possible weakness. Bearish crossover might be forming in the MacD which can indicate a possible trend reversal. Overbought indication is still happening in RSI which can create further bearish pressure in STI currently. Shorter-term indicators are clearly on the bearish side. Both Histogram and Stochastic are likely to continue its bearishness. Hence, STI will likely to continue to face bearish pressure currently.

 

With bearish pressure set to continue this week, 3355 support level will be very likely to be tested. However, it will be hard to determine whether STI will be testing this support level this week or in other weeks. The next important factor to watch out for this week will be whether STI will be breaking the support of 3355 level. Once this support level is broken, STI will be heading towards the next lower support level. Immediate support can come from the 20 week MA line at around 3330 level. Breaking 20 week MA will lead to a possible correctional movement towards the support at 3270 level. Going beyond 3270 support level is going to be hard as the 50 week MA line is near.

 

3355 support level is a perfect support level for STI to form higher low formation. If higher low is being formed, it is an indication of continuation of uptrend movement. Therefore, it is an important level to watch out this week. It is also important because it can be a good level to build up bullish positions to ride further upside movements. After rebounding from 3355 support level, STI should be able to test its resistance at 3450 level again. Breaking 3450 resistance level will confirm the uptrend continuation.

 

In conclusion, the current bearish movement is still within my expectations as long as the support at 3355 level holds firmly. Breaking 3355 support level will bring STI towards its 20 week MA line at 3330 level, with possibilities of hitting at low as 3270 level. However, this retracement movement is a good setup for further upside to happen in STI. As long as the support at 3355 level holds, STI will still have the ability to test its resistance at 3450 level or even be able to go beyond its resistance at 3450 level. As for now, do expect STI to be trading on the bearish side to end the year of 2017.

 

What to watch out for this week:

1)      Testing of 3355 support level.

2)      Breaking of 3355 support level

3)      Testing of 3270 – 3300 support levels.

4)      Testing of 3450 resistance level.

 Trading strategy to adapt right now:

-        Long traders should wait for support to be tested

-        Shortists should start to take profits off the market

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