Straits Times Index held firmly at its support level. | Jay Chia - Your Financial Mentor

Straits Times Index held firmly at its support level.

Straits Times Index held firmly at its support level.
Straits Times Index held firmly at its support level.

Rebound actions were seen in Straits Times Index last week as market participants were looking for bargains. 2740 support level was recovered during the week but volatility is still seen. The key motivating factor for the price surge is the rebound in oil prices. Offshores counters were seen recovering from their lowest. Other stock components were also able to continue their bullish streaks. However, as the month of June is getting nearer, market starts to get more anxious of the decision of US Feb government’s decision on its possible interest rate hikes. With this concern, STI’s upside was limited and hence, only 28.91pts was gained. STI ended at 2763.82 level.

With growing concerns in the market, many were questioning the sustainability of this rebound. Will STI be able to maintain its bullish streak this week?

Trend: Uptrend formation failed to sustain, 20 wma starting to turn down, MacD near 0 level.

Support: 2740 (20 week MA), 2670, 2620, 2530

 Resistance: 2800, 2900, 2950

Observations:

Candlestick – White candle with longer upper shadow.

Histogram – 4Rs. MacD close to 0 line

RSI – At 62.8%. Bounce off 50% line.

Stochastic – At 10.7%. Oversold.

Bollinger Band –At mid line. Flat band.

Conclusion:

STI became a little more decisive after last week’s rebound. White candle was formed and this indicates that bullishness has returned to the market and its support at 2740 level is retained. However, its upper shadow formation had indicated that STI is also facing resistance at 2800 level. This resistance level is holding well and will likely to cap STI’s upside. With this action, it is hard to determine whether STI will be reverting back to its uptrend movements. Hence, further confirmation can only be identified from the indicators.

 

Mid-term indicators are still showing indecisiveness as the uptrend movement is not reverted. MacD line is still trending close to the 0 level and did not show significant changes are last week’s bullish movement. RSI rebounded from the 50% line and this might be a good foundation for STI to revert the trend back to uptrend. Shorter-term indicators are on the bearish side despite the rebound last week. This indicates that the bearishness will likely to persist during the week but with the oversold readings from Stochastic, STI is unlikely to face strong selling pressure. Hence, selling pressure will likely to be weak this week.

 

With short-term indication of bearishness, STI might continue to test its support at 2740 level before further bullish conviction is to set in. Even if STI is able to gain bullish traction, it will likely to face resistance at 2800 level. Volatility in the market will likely to continue as market participants will likely to be indecisive this week. Therefore, it is more likely that STI will be trading in a tight narrow range between 2740 – 2800 level. Oil prices movement will continue to be the main catalyst of market movement for this week.

 

We should also not rule out the possibilities of an upside breakout this week. With RSI showing resilient in dropping below 50% level, STI can attempt to break the resistance at 2800 level. If 2800 resistance level is broken, STI might attempt reverting its trend back to uptrend. This will mean that it will face the next resistance at 2900 level. 2900 level will then be a tougher resistance level to break as 50 week MA resistance line trend at that level. Hence, the upside should be capped at that level.

 

In conclusion, the Straits Times Index is likely to continue to face bearish pressure this week. However, with its oversold situation, the support level at 2740 level will likely to hold firmly. As long as this support level holds, STI will still be able to attempt to test 2800 resistance level. Oil price movement will be the main catalyst to determine whether STI will be able to break 2800 level. If oil price is able to continue to rebound, 2800 should be able to break easily. Once this resistance level is cleared, STI will then seek to test its next resistance at 2900 level. 2900 resistance level is a strong resistance level which STI’s upside will be capped.

 

What to watch out for this week:

1)      Testing of 2740 support level

2)      Testing of 2800 resistance level

3)      Breaking of 2800 resistance level

4)      Testing of 2900 resistance level

 Trading strategy to adapt right now:

-          Long traders should start considering taking partial profits.

-          Shortists are to watch for clear bearish signs.

 

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