Straits Times Index to continue its consolidation mode.

Straits Times Index to continue its consolidation mode.
Straits Times Index to continue its consolidation mode.

It was a volatile week for Straits Times Index as growing concerns on possible trade war to happen between US and China. Many have seen that trade war can affect the economic situation of the whole world and hence, reacted bearishly upon retaliation by the China officials. The strongest reaction happened on Wednesday where STI was seen breaking its key support level at 3350 level. However, the reaction was short lived as most of the losses were recovered immediately the next day. This wild swing had puzzled many traders which caused a much strong rebound last Friday. Instead of bearish closing for the week, STI was seen closing at 3442.5 level with 14.53pts gained for the week.

With such wild swing happening in the market, what should our actions be? It is the sign of a market bottom or is STI preparing itself for further downside?

Let’s read the chart for more information.

Trend: Possible sideways to uptrend, 20 wma flatten, MacD above 0.

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

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

Observations:

Candlestick – Short white candle. Possible Bullish hammer pattern.

MacD – Multiple Red. No bearish divergence.

RSI – At 52.8%. No bearish divergence. Bouncing off RSI support.

Stochastic – At 28.7%. No crossover formed

Bollinger Band – Tested lower band. Band contracting.

Conclusion:

The Straits Times Index had managed to test the key support level of 3350 level and broke this support level briefly. Thursday’s rebound had caught many bearish traders by surprise as there was no continuation of the breakdown of support. The bullish spike on last Friday could be due to short covering actions by traders whom are surprised by non-continuation of the downtrend. With the bullish hammer candle formation last week, it is clear that STI is still holding firmly at its key support of 3350 level. Downtrend formation did not confirm and now, there is a possibility of sideways formation. STI is clearly sitting on the fence currently.

 

The mid-term indicators did not have much change last week as the market manages to recover most of its bearish actions during the week. Underlying momentum can deem to be still bullish but it is now skewing more towards sideways kind of movements. Shorter-term momentum is on the bearish side currently. However, it is still unclear of whether STI will be reversing its shorter-term bearish momentum currently as there isn’t much change to the reading comparing to the previous week. Hence, in shorter-term, bearishness can still persist.

 

Despite the bullish closing last week, STI is still likely to continue to face bearish pressure this week based on the shorter-term indicators. It is still facing the immediate resistance level at 3450 level while it had clearly shown that the key support at 3350 level is holding firmly. With likelihood of bearishness this week, STI can continue to test its key support level at 3350 level. This firm support level will unlikely to break as it requires strong bearish conviction which will require the bargain hunters to stay out of the market. For this to happen there must be bearish news which will cause bargain hunters to think twice.

 

Bullish actions are not out of the league currently. With bullish underlying still intact, STI can also attempt to trade higher this week. In order for this scenario to happen, STI must first be able to break its resistance level of 3450. Breaking this resistance level will indicate further bullish attempts towards the next resistance level of 3530 level. Another indication after this breakout will be the indication of sideways movement. Therefore, STI will also be unlikely to breakout of 3530 resistance in this week.

 

In conclusion, the Straits Times Index continues to stay in its consolidative period despite its temporal breakdown of its support at 3350 level. 3350 support level will still remains as a key support level to confirm its downtrend movement. It is deems unlikely for STI to break this support level this week despite possibilities of further bearish movements to happen in this week. Upside will also be limited as STI is now facing resistance at 3450 level. It will unlikely to go beyond 3450 level this week. Therefore, STI will likely to trade in a tight range between 3350 – 3450 levels this week.

 

What to watch out for this week:

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

Trading strategy to adapt right now:

  • Long traders should stay sidelines unless clear uptrend is being formed.
  • Shortists to be prepared for crucial support level to break.

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