Straits Times Index poised for retracement movements

Straits Times Index poised for retracement movements
Straits Times Index poised for retracement movements

The long awaited bearish sentiment started to appear in the Straits Times Index last week after 5 weeks of rally. STI attempted to trade higher during the early week but failed to sustain the bullishness. Selling pressure was triggered by the bearishness in the US market. There was no strong reason for the market to start buying and hence, sellers dominated the market last week. Due to this, the momentum to help STI to reach 3630 resistance level has stopped and reversed. A total of 37.32pts was lost during the week as STI close at 3539.82 level.

Has the bullish momentum in STI truly ended? Will this bearish action be a good opportunity for us to start buying?

Let’s read STI’s chart to understand the situation.

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

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

Resistance: 3630, 3700

Observations:

Candlestick – Bearish engulfing pattern.

Histogram – Just turned red, bearish signal. No bearish divergence. No bearish crossover yet.

RSI – At 66.7%. No Bearish divergence. Just exited overbought.

Stochastic – At 78.8%. Bearish crossover. Exiting overbought.

Bollinger Band – Tested upper band. Band contracting.

Conclusion:

STI’s bullish attempt is now coming to an end despite its attempt to reach the resistance level last week. Bearish reversal signal was being triggered last week. Bearish engulfing pattern is a strong reversal pattern which can create a strong selling pressure if the pattern is being confirmed with another bearish closing. Therefore the market behaviour for this week is crucial as this will confirm further bearishness in the market. Indicators readings will help us further confirm whether the bearishness in the market will seep in deeper.

 

The mid-term indicators are still running on the bullish momentum despite the bearish movements last week. One bearish movement is not able to have a large impact on the mid-term momentum. RSI is now peeking out of the overbought region. This means that it had triggered a shorter-term bearishness which can lead RSI towards its 50% level. Despite the possible bearishness, the mid-term momentum is still bullish. Shorter-term indicators are now turning towards the bearish side. Bearish signals are being triggered in both Histogram and Stochastic. This bearish trigger indicates a possible further downside pressure for the index. What is lacking right now is a bearish confirmation.

 

Therefore, it is clear that STI will likely to face further bearish movement for this week. However, bearish confirmation is needed before we can conclude that the bearish movement will be sustainable. To confirm the bearishness, we must identify a level to trigger the confirmation. The immediate support level that STI is being supported right now is at 3530 level. STI seems to have broken this support level slightly last Friday. If STI is to continue to trade below this support level this week, it will confirm the bearish momentum in STI. So the key to bearishness will be whether STI will be able to recover above 3530 level this week.

 

If bearishness starts during early this week, it will be highly probable that STI will face further selling pressure. The next support level stands at 3450 level and STI will likely to attempt to test this support level. As 20ma week MA line is close to this support level, it will likely to prevent STI from falling beyond this support level. But if the bearishness is very strong, STI might even attempt to test a much deeper support level at 3355 level.

 

In conclusion, the Straits Times Index will likely to face bearish pressure this week if the support level at 3530 level is compromised. If bearish movement is kick starting this week, further bearish pressure is expected to happen during the week which can push STI to its next support level at 3450 level. Breaking below 3450 support level is unlikely to happen for now as the support at this level will likely to be strong. Despite the bearishness, the underlying bullish trend is still intact as such bearish action can just turn out to be a mere retracement action.

 

What to watch out for this week:

1)      Testing of 3530 support level.

2)      Breaking of 3530 support level.

3)      Testing of 3450 support level.

 Trading strategy to adapt right now:

-        Long traders should stay sidelines to wait for a rebound opportunity.

-        Shortists can look towards short positions for quick retracement profit.

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