Straits Times Index extending its reach at key resistance level.

Straits Times Index extending its reach at key resistance level.
Straits Times Index extending its reach at key resistance level.

Straits Times Index traded mixed last week as it starts to experience the earnings reporting week for the banks. The week started off with positive vibe as market participants were expecting strong results from the banks. However, when Ocbc bank announced its earnings, the market was surprised by it and caused STI to gap down strongly, triggering the biggest drop of the month. There was good support in the market as the rest of the sectors in the market are drawing buyers. Properties counters were seen to be firm as Capitaland shows strong results. After which, when DBS and Uob starts to announce their earnings, the market got assured that the banks are resilient in current climate; causing prices of the banks to rebound. Eventually, STI is still able to end the week positively with 7.26 points up. Closing at 3107.65 level.

This week will be another week that the market is anticipating. Singapore’s budget is announcing on Monday and this might have an impact on Singapore’s future economy. Will there be more volatility this week?

Let’s analyse STI’s chart.

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

Support: 3010, 2960 (100 week MA), 2880

 Resistance: 3100 (200 week MA), 3160, 3240

Observations:

Candlestick – Dragonfly doji.

Histogram – 2 Gs. No bearish crossover yet.

RSI – At 77.3%. Overbought.

Stochastic – At 91.2%. Overbought. Bearish crossover yet to confirm.

Bollinger Band – At upper band. Band expanding.

Conclusion:

Straits Times Index managed to test and close around 3100 resistance level last week. 200 weekly MA also started to confluence at this resistance level which seems to be capping STI’s upside last week. Dragonfly doji shows that there is indecisiveness in the market which can lead to a reversal point or a breakout of the resistance level. It has become harder to interpret as this point in time. This week can turn out to the deciding factor of whether a retracement can happen for STI.

 

The mid-term indicators continue to stay on the bullish zone but overbought situation seems to be extended. There are still no clear signs of weakness yet and hence, the underlying bullish strength will likely to continue this week. Shorter-term indicators seem to be at an indecisive state as there are no signs of bearish reversal. Overbought situation is still persisting. Thus, upside will likely to continue to be capped.

 

Therefore, last week’s market actions did not show very clear direction. There is a stream of indecisiveness in the market actions which need further confirmation through this week’s market action. It is clear that STI is now facing strong resistance level at 3100. Bearish actions can set in at this level as it is deemed to be a good level to form STI’s higher high formation. If this week turns out to be a bearish week, it will then confirm that STI will be going for a retracement action which can reach its support at 3010 level or even 2960 level.

 

But if the market becomes stubborn in the downside, it will only mean that it is attempting to break the strong resistance at 3100 level. If strong trading volume is to set in this week to break 3100 level, it will indicate that STI will be heading towards its next resistance at 3160 level. Going beyond 3160 level is unlikely to happen for now as it is currently in overbought situation. Limited upside is more likely to happen now as the market is clearly in overbought situation right now.

 

In conclusion, the Straits Times Index is more likely to face strong resistance at 3100 level this week. Chances of retracement action are much higher despite indecisive market actions. Market participants will likely to find opportunities to take profit out of the market if there is any news that is not within the expectations. Support will then be tested at either 3010 level or 2960 level. Going beyond 3160 level is highly unlikely right now given that STI is riding on an extended overbought situation.

 

What to watch out for this week:

1)      Testing of 3100 resistance level

2)      Testing of 3010 support level

3)      Testing of 2960 support level

4)      Testing of 3160 resistance level

 

 Trading strategy to adapt right now:

-        Long traders should take partial profits at resistance level.

-        Shortists whom can take risk can start watching out for retracement actions.

 

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