Greek pro-bailout parties won the election. STI might head further.

Greek pro-bailout parties won the election. STI might head further.
Greek pro-bailout parties won the election. STI might head further.

Last week, STI was up by 73.11pts despite the possibilities of the Greek exiting the EU after its election on Sunday. Many were concerned about the outcome of the Greek election and choose to stay cautious during the week. However, risk takers and bargain hunters were seen throughout the week to pick up long positions which caused STI to trade with an upside tendency. The start of the week was first greeted a strong gap up which its gap support was quickly being covered in the next day. Bearish signals also failed to confirm during the week after Friday’s strong bullish closing. Friday’s sharp rally is due to anticipation of positive outcome of Greek’s election over the weekend. STI indeed anticipated the right results for the Greek as voted for pro-bailout parties. This had erased the fears of further outbreak of Euro situations. Will STI be lifted higher this week after the Greek election? Has STI reversed its downtrend?

Let’s read the chart for the answer.

 

Trend: Downtrend with possible sideways, 20ma flat, MacD below 0

 

Support:  2770 (20ma), 2730, 2700

 

Resistance: 2830 (200ma),2880 (50ma), 2915 (100ma)

 

Observations:

Candlestick – Long white candle.

Histogram – 1G after 1R, bearish signal failed. Bullish divergence spotted.

RSI – Around 53.7%. Bullish divergence spotted.

Stochastic – Around 80%. Overbought. Bearish crossover seen.

Bollinger Band – Between Mid and Upper band. Band squeezing.

 

Conclusion:

The strong showing by STI last week had helped us to be more certain that the bulls were in play. The break of 20ma resistance line last Monday was the first clue that STI is experience bullish underlying. Furthermore, a strong rebound after testing the gap support between 2760 – 2770 levels is the second sign from the bulls. Further bullish confirmation was seen when 20ma line held well as a support on Thursday and strong upside movement that is being seen on Friday. These price actions provided strong evidence that STI is indeed attempting to reverse it downtrend. However, is this bullish strength temporary or will it be sustainable? The indicators should help to show the strength.

 

The mid-term indicators are changing last week as the bullish movement have started to change the bearish momentum. Although the MacD line is still below 0, the flattening of 20ma and RSI trading slightly above 50% line is giving some hints that the trend could have changed. Bearish divergence signals were seen to be intact and this increases the odds of a trend reversal. Short-term indicators were showing bearish signals last week but the bearish signal seems to have failed after last Friday’s long white candle closing. This is also a sign that the downtrend had weaken and possibilities of its trend to reverse. Henceforth, the indicators were indicating that the downtrend could have probably reversed to sideways at the moment.

 

As identified on the previous week, in order for STI to confirm its uptrend, it must either form a higher high or higher low formation. From the charts, STI seems to have formed a higher low formation after a strong gap opening on Monday. However, it is still very unclear whether this higher low formation is a valid one as this higher low is only being formed by 3 days of movement. Therefore, the key confirmation of reversal to uptrend formation right now is higher high formation. The recent high of STI stands at 2830 level and 2830 confluences with 200ma resistance line. If STI is able to break 2830 this week after positive results from the Greek election, it will confirm STI’s uptrend formation. Once the breakout of this major resistance of 2830 level is being seen, STI is likely to head to the next resistance level of 2880 to test it.

 

On the other hand, if the market participants felt that the positive news from Greek election is already priced in, retracement could occur. 2770 support level that confluences with 20ma will be the key level to hold in order for STI to have chance to turn uptrend. However, if it fails to hold, it would have confirmed that the trend is a sideway and this could lead the retracement to be a deeper one. The next immediate support of STI stands at 2730 level. This retracement scenario might have a chance to happen as Stochastic is showing overbought condition and its bearish signal is still intact.

 

In conclusion, with positive news from the Greek election over the night, it will likely to bring move bullish movements to STI for this week as the fear of further economic meltdown has been reduced drastically. This could lead to a break out of 2830 resistance level which will confirm STI’s uptrend formation. If this occurs, we will likely see STI heading for 2880 resistance level this week. However, there is still a risk of STI retracing after such bullish movement last week. If STI fails to break 2830 resistance level, STI might be retracing back to 2770 support level and continue its sideways formation. Despite these 2 possible scenarios to occur for STI this week, one can be certain that STI’s downtrend has ended and the trend now can either be sideways or uptrend. Henceforth, odds has been shifted to the long side currently.

 

 

What to watch out for this week:

1)      Breaking of 2830 resistance level

2)      Testing of 2770 support level

3)      Testing of 2880 resistance level

4)      Breaking of 2770 support level

 

Trading strategy to adapt right now:

-          Long traders whom had entered based on counter-trend strategy last week will be greeted with profits. Partial profits should be taken when targets are met. Enter long positions when there is confirmation of break out for uptrend formation.

-          Shortists with short positions should exit their shorts when uptrend is being confirmed. Entering new short position is not wise right now as the downtrend has been reversed.

 

 

*Disclaimer:

This analysis is provided to you for general information only and does not constitute a recommendation, an offer or solicitation to purchase or sell the product mentioned. 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 you acting based on this information. Investments are subject to investment risks.

Please consult your respective advisers.