Straits Times Index might attempt a rebound

Straits Times Index might attempt a rebound
Straits Times Index might attempt a rebound

Happy Lunar New Year to everyone and I wish everyone will Huat Huat Huat this year!

Last week, Straits Times Index did not show a sea of red as an auspicious symbol to start the Lunar New Year. Market participants are excited by the cheaper valuation in the market and decided to buy into the market. In the shot 4 days week, STI was able to start the week bullishly. However, the bullish start was not easy as it continues to face selling pressure which caps STI’s upside. It is clear to see the strength of the bears in the market on Wednesday as STI was unable to sustain its strong opening during the day. But STI still managed to close the week with 66.27pts up as sellers decided to take a earlier break at the end of the week on Thursday. Therefore, STI is able to end the short week at 3443.51 level.

On Monday, market’s eyes will be on Singapore’s budget announcement as it can have an impact on businesses. Positive vibes were speculated in the market. Will this help STI to continue its rebound this week?

Let’s look at STI’s chart for a clearer understanding.

Trend: Possible sideways to downtrend, 20 wma still up, MacD above 0.

Support: 3350, 3270 (50 week MA), 3190

Resistance: 3450 (20 week MA), 3530, 3630

Observations:

Candlestick – Bullish harami pattern.

Histogram – 3Rs. No bearish divergence. Bearish crossover formed.

RSI – At 51.9%. No Bearish divergence. Bouncing off RSI support.

Stochastic – At 37.4%. Bearish crossover already formed.

Bollinger Band – Tested mid band. Band contracting.

Conclusion:

Straits Times Index had tested 3350 support level on the previous week which requires a rebound to confirm the support. Last week’s market action have helped STI to confirm this support level as bullish harami pattern was formed. With support holding, STI can attempt to rebound for this week as long as there is confirmation for the bullish harami pattern. In order for the rebound to be sustainable, the indicators must also be ready for the rebound momentum.

 

The mid-term indicators are still showing signs of weakness in the bullish readings. MacD still furthers its bearish readings which can continue to produce downward pressure on STI. However, RSI support seems to be holding well as it rebounded last week. Therefore, STI is in a period of tussle between the bulls and bears. Shorter-term indicators are showing bearish readings currently. This can create further bearish actions this week despite a bullish closing last week. Hence, bearishness will likely to continue to happen this week.

 

Based on the indicators readings, it will be harder for STI to confirm its bullish harami pattern. In order for this bullish harami pattern to be confirmed, STI must first be able to clear the hurdle of resistance level. STI is currently close to the resistance level of 3450. If STI is able to break this resistance level, further bullish movement will then be able to occur. After which, further upside attempts will help STI to reach its next resistance level of 3530 level. 3530 resistance level will be a strong resistance level which will prevent STI from going higher. This resistance level will also be a good level for STI to form its lower high formation. Therefore, it is an important level to watch for downtrend formation.

 

Despite rebound hopes, bearish indication is high currently. Hence, I will not be surprise that the resistance at 3450 level holds firmly. If this resistance level holds firmly, STI will be returning back to its support level at 3350 level to test it. There will also be a risk of breaking this support level. Once this support level breaks, downtrend formation will be confirmed and this will lead STI to seek a much lower support level at 3270 level.

 

In conclusion, the Straits Times Index is now sitting on the fence. There is opportunity for STI to rebound this week but it will likely to be capped at 3530 resistance level. 3530 level is a key resistance level as it will be a good level for STI to form its possible downtrend formation. Another key level to watch out this week will be the support at 3350 level. Breaking this support level will indicate further downside towards 3270 level.

 

What to watch out for this week:

  1. Breaking of 3450 resistance level.
  2. Testing of 3350 support level.
  3. Testing of 3530 resistance level.
  4. Testing of 3270 support level.

 Trading strategy to adapt right now:

  • Long traders should stay sidelines despite rebound opportunity.
  • Shortists can take short positions when rebound hits resistance level.

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