Straits Times Index at crucial support level

Straits Times Index at crucial support level
Straits Times Index at crucial support level

The Straits Times Index passed last week with a bearish note as concerns on Trumponomics might fail to happen as the market makes comments on the ability of the US president. The start of the week was on a positive note as it had attempted to make a high of 3275 level. However, questions of sustainability were in the air and this triggers sellers to enter the market; causing STI to hit as low as 3189 level before bargain hunters entering the market. The bargain hunters helped STI to sustain above 3200 level for the week. Volatility increased after the drop last week. With these movements, Straits Times Index closed the week with 38.37pts down, ending at 3216.92 level.

Strong selling pressure after 3 weeks of rally have triggered bearish thoughts in many traders mind. Will STI start another round of bearish movement this week?

Let’s look at STI’s chart for clues.

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

Support: 3180, 3100 (20 & 200 week MA), 2960 (50 week MA)

 Resistance: 3255, 3350, 3450

Observations:

Candlestick – Black candle with long lower shadow.

Histogram – 1 R. Possible bearish crossover.

RSI – At 68.1%. Out of overbought.

Stochastic – At 81.3%. Overbought. No bearish crossover yet.

Bollinger Band – Close to upper band. Band contracting.

Conclusion:

Expectations of further upside had failed to turn true last week. This reversal in expectation has led many to switch their expectation to the bearish side. Therefore, it created a strong selling pressure last week. With such movements, it had confirmed that the resistance level at 3250 level is formed. This means that retracement actions are likely to follow up after the bearish movement last week. But before I jump into conclusion, it is better to confirm from the readings in the indicators to affirm what I have suspected to happen.

 

The mid-term indicators continued to be on the bullish side and did not show any signs of possible bearish reversal. RSI is now out of the overbought zone. This means that the bearish movement last week can just be a temporary relief for the strong uptrend movement. However, this does not mean that STI is out from the danger of a stronger retracement movement. Shorter-term indicators are switching to the bearish side after last week’s movement. Histogram has turned bearish while Stochastic seems to be starting to show its bearish side. Therefore, STI is likely to face further bearishness in the short term.

 

With bearish expectation, it is important to identify how low STI can go. Immediate support level for STI is at 3180 level. 3180 can be deemed as a strong support level as it used to be a tough resistance level to break through. Therefore, downside will likely to be limited to this support level this week. However, if this support level fails to hold, it can trigger a deeper retracement movement which can lead to 3100 level. When this happens, the mid-term indicators will start to skew towards the bearish side. This will then indicate a deeper correctional movement for STI. Henceforth, it is important to watch out for the support at 3180 level this week.

 

As 3180 support level is deemed to be a strong support level, it will also be a very good platform for STI to form its higher low formation. Hence, if STI is able to hold firmly at 3180 level, the prevailing uptrend will likely to continue. Bouncing off 3180 level will be a good indication to indicate upside movement. The immediate resistance level of 3255 level will be tested again. Breaking out of 3255 level will confirm its continuation of uptrend movement which can lead STI to the next resistance at 3355 level. So the key will be 3180 support level again.

 

In conclusion, the Straits Times Index is likely to face further bearish pressure this week. Immediate support level at 3180 level is a key support level. This support level will decide whether STI will be heading lower or higher in the near future. Breaking 3180 support level will lead to a deeper retracement towards 3100 support while rebounding of 3180 support level will lead STI towards 3255 resistance level. Therefore, STI is now in a decisive period which one should start watching closely.

 

What to watch out for this week:

1)      Testing of 3180 support level.

2)      Breaking of 3180 support level.

3)      Testing of 3100 support level.

4)      Testing of 3255 resistance level.

 

 Trading strategy to adapt right now:

-        Long traders to stay cautious.

-        Shortists to watch the outcome of bearish movement.

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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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