Straits Times Index faces strong sideways resistance at 3630 level.

Straits Times Index faces strong sideways resistance at 3630 level.
Straits Times Index faces strong sideways resistance at 3630 level.

Last week was a bearish week for Straits Times Index as profit pressure dominated the market during the last few days of the week. The week had a strong start but right after Wednesday, the market gapped down strongly on Thursday. This gap down action could be due to multiple index components going on Ex-Dividend. Further Ex-Dividend was seen on the next day which caused STI to close at a lower level. This “false sense” of selling pressure could have led some traders to exit the market without realising the impact of Ex-Dividend. Hence, STI was seen closing with 31.83pts lower, ending at 3545.38 level.

Has STI’s bullish momentum stopped after last week’s bearish action? Will further bearish movement happen this week?

Let’s look into STI’s chart to identify the momentum.

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

Support: 3530, 3450 (20 week MA), 3350 (50 week MA)

Resistance: 3630, 3700, 3860

Observations:

Candlestick – Bearish engulfing pattern.

MacD – 4Gs. Possible bullish crossover. No bearish divergence.

RSI – At 48.5%. No bearish divergence. Slightly below RSI support.

Stochastic – At 82.2%. No Bearish crossover. Overbought.

Bollinger Band – At upper band. Band expanding.

Conclusion:

The Straits Times Index had faced strong resistance at 3630 level last week. It failed to sustain above the year’s high of 3611 despite being able to break it during early week. Furthermore, bearish engulfing candle reversal pattern was formed. This affirms that the resistance level at 3630 level is very strong. With this kind of resistance, it can also indicate that STI may be in a sideways trend instead of uptrend; Sideways can form between 3350 – 3630 levels currently. Therefore, we should watch for this possibility for the market currently.

 

The mid-term indicators are largely not affected by the bearish movements last week. MacD continued to stay above the 0 level with a possible bullish crossover. RSI dipped slightly below 50% level but it is possible to happen if sideways movement happens. With this, there is a clue of possible sideways movement in STI. Shorter-term indicators are starting to look bearish. Stochastic is currently in overbought zone and is starting to head lower. Possible bearish crossover can happen if further bearish movement happened this week. Histogram is still bullish but if further bearishness happens, it will trigger bearish signal.

 

The resistance level at 3630 level is definitely strong. Underlying momentum can either be bullish or sideways currently. Sideways trend possibility is higher right now as RSI seems to holding firmly at 50% level. Therefore, with price near resistance level, retracement actions can be high right now. Currently, STI is trading near to its immediate support of 3530 level. This support level will be the key support level to determine whether STI will be going for a deeper retracement. Breaking this support level can lead STI towards its 20ma weekly support line at 3480 level. This is another support level which STI must hold in order to have higher chance of forming uptrend movement in the future.

 

If STI fails to hold at the 20ma weekly support line, it will further lower the chance of uptrend formation while increases the chance of sideway formation. Uptrend formation chance will disappear if STI fails to hold the next support level of 3450 level. Once this support level fails to hold, it will be definite that STI will be testing its sideways support level at 3350 level. Going beyond this support is definitely unlikely currently.

 

In conclusion, the Straits Times Index will likely to face bearish pressure this week since the resistance level at 3630 level is holding firmly. It might find support at either 3530 or 3480 level this week. If these support levels hold, it will indicate that STI will be able to start forming uptrend again. However, failure to hold at these 2 support levels will greatly reduce the chances of STI heading higher; which can lead to further downside movements towards sideways support of 3350 level.

 

What to watch out for this week:

  1. Testing of 3530 support level.
  2. Breaking of 3530 support level.
  3. Testing of 3480 support level.
  4. Testing of 3630 resistance level.

Trading strategy to adapt right now:

  • Long traders take cautious positions when support level at tested.
  • Shortists should stay sidelines.

This market analysis is part of the premium services that is provided to Jay Chia’s clients. If you would like to find out on what other premium services Jay Chia provides, please visit www.Jay-Chia.com. You can also contact Jay Chia through the website.

Like Jay Chia’s Facebook page to receive more market opinions now!
https://www.facebook.com/JayChia.Mentor/

 

The information contained in www.jay-chia.com is provided to you for general information/circulation only and is not intended to nor will it create/induce the creation of any binding legal relations. The information or opinions provided do not constitute investment advice, a recommendation, an offer or solicitation to subscribe for, purchase or sell the investment product(s) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. Accordingly, no warranty whatsoever is given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of any person or group of persons acting on this information. Investments are subject to investment risks including possible loss of the principal amount invested. The value of the product and the income from them may fall as well as rise.

 

You should seek advice from a financial adviser regarding the suitability of the investment products mentioned, taking into account your specific investment objectives, financial situation or particular needs, before making a commitment to purchase the investment product. In the event that you choose not to obtain advice from a financial adviser, you should assess and consider whether the investment product is suitable for you before proceeding to invest.

 

Any views, opinions, references or other statements or facts provided in this www.jay-chia.com are personal views. No liability is accepted for any direct/indirect or any other damages of any kind arising from or in connection with your reliance on the information provided herein.