Straits Times Index starting its bullish streak

Straits Times Index starting its bullish streak
Straits Times Index starting its bullish streak

The Straits Times Index managed to perform a rally last week as it confirmed its rebound from the support of 3350 level. This bullish action happened after breaking its resistance at 3450 level; which leads to confirmation of the bullish reversal pattern. Looking into the daily market action, it seems that there was strong tussle between the bullish and bear as 2 days of the week ended in red. Despite the tussle, the bullish buyers eventually managed to maintain the price and helped STI to end the week high. A total of 89.71pts was gained which lifted STI to close at 3533.22 level.

With such strong bullish closing last week, many are questioning on whether this bullish strength will continue. Based on my previous week’s review, there is also a possibility of lower high formation. So this week’s movement in the market will be the key.

Let’s look into STI’s chart again to identify the possibilities.

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

Support: 3450 (20 week MA), 3350, 3270 (50 week MA)

Resistance: 3530, 3630, 3700

Observations:

Candlestick – Long white candle.

MacD – Histogram turned green. No bearish divergence.

RSI – At 61.5%. No bearish divergence. Bounced off RSI support.

Stochastic – At 40.9%. Possible bullish crossover.

Bollinger Band – Bounced off mid band. Band contracting.

Conclusion:

Straits Times Index managed to confirm its bullish harami pattern last week by breaking 3450 resistance level. This is still inline of the expectations I had made during the previous week. However, what is interesting is that it just took a week to reach the resistance level of 3530 level. Looking closely, it seems that STI has also broke its resistance level at 3530 level which confluences with the gap resistance between 3491 – 3522 levels. It can be hard to determine if the breakout is sustainable as it only close 3 pts higher than the resistance level of 3530 level. The only assurance is the volume which is higher than average. Indicators will also give further hint on this bullish strength.

 

The mid-term indicators are starting to show signs of strengthening of the bullish momentum. RSI managed to bounce of its support gracefully and this can lead to further bullish momentum. MacD is not heading lower anymore and this can lead to further upside. The shorter-term indicators are also skewing towards the bullish side currently. Histogram managed to trigger a bullish signal which can help to sustain its current bullish momentum. Stochastic has yet to turn but if bullishness continues, it is certain to see Stochastic triggering a bullish crossover.

 

Confirmation of the bullish harami pattern had attracted a lot of buyers into the market. This bullish momentum seems to be sustainable after analysing the indicators. Further upside movement can happen this week where STI might not be running the risk of lower high formation which can lead to downtrend formation. However, this does not mean that STI will be continuing its uptrend formation. There is still a risk of sideway formation. The uptrend’s high is at 3611 level where STI has yet to break. This high can create the upper limit for STI to form a sideways trend between 3350 – 3610 levels. Therefore, 3610 level will be a key resistance level to watch currently. If STI is able to break 3610 level, it will help to conclude that STI is continuing its uptrend movement. Otherwise, sideways risk is still there.

 

Despite the bullish anticipation, bearish risk is still lurking as lower high formation can still form. If STI is unable to sustain its gains this week, bearish strength can still take control. The hint of bearishness will be the resistance level of 3530 level. If STI is unable to continue to hold above this resistance level, bearish reversal can happen. If this happens, lower high formation can form which can lead to downtrend formation. This is when STI will retest 3450 or even 3350 support levels again.

 

In conclusion, the Straits Times Index has good chance of trading higher this week. Possibilities of downtrend formation has lowered drastically but it does not mean that uptrend will continue. The last hurdle for STI to clear will be the uptrend’s high at around 3610 level. Breaking this high will only mean continuation of uptrend formation. But if STI is unable to sustain above 3530 level this week, risk of bearish movement will be reverted.

 

What to watch out for this week:

  1. Testing of 3610 high.
  2. Breaking of 3610 high.
  3. Failure to hold above 3450 level.

Trading strategy to adapt right now:

  • Long traders should stay sidelines unless clear uptrend is being formed.
  • Shortists can take short positions if 3530 resistance level holds well.

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