North Korea's 2nd missile affected Straits Times Index

North Korea's 2nd missile affected Straits Times Index
North Korea's 2nd missile affected Straits Times Index

Straits Times Index had another bearish week last week as multiple concerns were felt last week. Rebound attempts were seen early last week as US market managed to hit historical highs. Despite bullish sentiment around the markets, STI was seen struggling to maintain its gains during the day and ended up closing flat on the early week. Selling pressure was felt throughout the week but STI stubbornly hold above 3220 level. However, on Friday morning, North Korean fired another test missile over Japan which triggered fear over the Asian market. This helped STI to crack 3220 level immediately and lead STI towards 3200 support level. This support level was being tested on Friday but it managed to hold well by closing at 3209.56 level. For the whole week, STI lost 19pts.

North Korea’s missile testing indeed strike further fears over the market. However, the US market reacted positively despite the fears. Will STI be able to regain bullish confidence this week?

Let’s analyse the chart.

Trend: Uptrend formation, 20 wma up, MacD above 0.

Support: 3190, 3100 (50 & 200 week MA), 2960

Resistance: 3270 (20 week MA), 3355, 3450

Observations:

Candlestick – Black candle with little lower shadow.

Histogram – Multiple Rs. MacD heading downwards. Bearish divergence still intact.

RSI – At 43.4%. Bearish divergence still intact.

Stochastic – At 17.4%. Oversold.

Bollinger Band – Testing lower. Band contracting.

Conclusion:

STI failure to recover above 20ma last week indicates that the bearish sentiment is still dominating the market. However, there seems to be an underlying bullish current which prevents STI from falling deeper. Currently, the support at 3190 level is holding firmly. The candle formed last week gives an indication that the support level is holding well. However, testing this support level also means that the uptrend movement is being compromised and STI will no longer be able to form a higher low. Thus, sideways to downtrend formations possibilities are heighten. But before we are able to conclude the type of trend it will form, we need to look into the indicators.

 

The mid-term indicators’ bullish readings are now getting a weaker after last week’s bearish movement. MacD is now getting closer to the 0 level. This indicates that weakening of the bullish momentum. Furthermore, RSI is now below 50% level which indicates further weakness in the trend. Shorter-term indicators continued to be on the bearish side. Histogram have yet to trigger a bullish signal; similar to the Stochastic. Price has now tested the lower band of histogram while Stochastic is now oversold. With this, chances of rebound in shorter-term will likely to be higher.

 

It is now clear that STI is holding well at 3190 support level. Probability of rebound happening is also high as the market is now short-term oversold. However, there is a lack of a triggering factor to push STI higher. One positive aspect that happened last week is the bullish closing by the US market last Friday. This can lead to bullish opening in STI. If this bullish opening can sustain, it will be able to help STI to initiate a rebound for the coming weeks. Rebound actions will also confirm that the support level at 3190 level is going to be firm. If rebound is to happen, STI will be heading back towards its 20 week MA line at around 3250 level or even to its resistance level of 3270 level.

 

As STI is now flirting with the key support level at 3190 level, it is also important to be prepared for a breakdown of the support level. If STI fails to hold at this support level, it will indicate a confirmation of downtrend formation. When downtrend is formed, STI will then go for a much lower support level. The next support level stands at 3110 level. This support level will be a strong support level which STI will unlikely to go beyond it in the short-term.

 

In conclusion, the Straits Times Index will attempt to consolidate at 3190 support level with rebound attempts. If the rebound is sustainable, STI will then be able to return to 3270 level to test the resistance level. Going beyond 3270 level is unlikely for now as bearish momentum is still capping the market. However, this does not mean that STI will not be facing bearish movement this week. If STI is unable to hold above 3190 level this week, it will indicate a confirmation of downtrend movement. With downtrend movement happening, it will mean that STI will be testing its next support at 3110 level.

 

What to watch out for this week:

1)      Testing of 3190 support level.

2)      Breaking of 3190 support level

3)      Testing of 3100 support level.

4)      Testing of 3270 resistance level.

 

 Trading strategy to adapt right now:

-        Long traders whom can take risk can consider short-term rebound trades.

-        Shortists can consider on the short side if the support fails to hold.

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*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.

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