Straits Times Index's upside getting limited.

Straits Times Index's upside getting limited.
Straits Times Index's upside getting limited.

The bullish sentiment remained firm last week. The bullish sentiment was mainly seen during the early week which pushed STI to as high as 3611 level. This bullish sentiment came to an end last Thursday as market participants preferred to stay out of the market. Strong profit taking pressure returned most of the gains of the week and this sentiment ended the week at 3567.14 level. This translates to a gain of only 16.78pts despite a strong start.

Will the bullish movements for the past few weeks come to an end? How will the month of January conclude?

Let’s review STI’s chart.

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

Support: 3530, 3450, 3355 (20 week MA)

Resistance: 3630, 3700

Observations:

Candlestick – White shooting star.

Histogram – 4 Gs. No bearish divergence. No bearish crossover.

RSI – At 75.9%. No Bearish divergence. Overbought.

Stochastic – At 89.6%. No bearish crossover yet. Overbought.

Bollinger Band – Testing upper band. Band expanding.

Conclusion:

Still within bullish expectation, STI is able to get much closer to the resistance level of 3630 level this time round. It seems that there is a psychological barrier at 3600 level as the market is unable to maintain above 3600 level last week. This possible resistance can be reinforced by the bearish shooting star pattern that it had formed last week. However, this bearish candle might not be enough to trigger retracement action as the candle closed with a white candle. Bullish sentiment might still remain. Therefore, there is a need for further readings from the indicators.

 

The mid-term indicators remain bullish despite possible bearishness. This explains the underlying bullish strength that STI is facing currently. However, overbought reading in RSI seems to be capping STI’s upside currently. Hence, a lack of strong bullish momentum is seen last week. Shorter-term indicators are also in the bullish region. This means that the bullish sentiment is unlikely to be affected by the selling pressure for the past few days. Further bullishness can occur but yet again, overbought situation will cap STI’s upside.

 

Therefore, despite the gains are being return at the end of last week, STI’s bullish momentum is likely to continue this week. Attempts to trade higher can continue to occur but it will unlikely to be strong as profit takers are likely to be active in the market. 3630 resistance level can still be challenged but it will only happen if STI is able to break the psychological level of 3600. This psychological resistance level will be the key watch out point this week.

 

Overbought readings have been showing for the past few weeks and this can attract profit taking pressures into the market. If the bullishness is unable to sustain this week, it will mean that resistance level is formed and retracement action will seep in. Support level now stands at 3530 level and it had been holding well. This support level can be retested due to profit taking action. But if it fails to hold, deeper retracement can reach the next support level of 3450 level.

 

In conclusion, the Straits Times Index might continue to challenge the upside currently but it might face psychological resistance at 3600 before attempting to challenge 3630 level. Profit taking sentiment is set to enter the market. This will prevent STI from heading higher. If profit taking strength is strong, STI might be forced to test its resistance turn support level at 3530 level. But if this support level breaks, do expect STI to head lower towards 3450 level.

 

What to watch out for this week:

1)      Testing 3600 resistance level.

2)      Testing of 3530 support level.

3)      Breaking of 3530 support level.

4)      Testing of 3450 support level.

 Trading strategy to adapt right now:

-        Long traders can start looking to take partial profits off the market.

-        Shortists should wait for bearish signals at resistance level to be confirmed.

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