1st Quarter earnings leads to cautiousness in Straits Times Index

1st Quarter earnings leads to cautiousness in Straits Times Index
1st Quarter earnings leads to cautiousness in Straits Times Index

1st quarter earnings announcements have started rolling out last week as market participants were busy understanding the change in companies performances are the reporting. During this period, many decided to stay cautious and stayed out of the market. Hence, Straits Times Index was affected and started the week bearishly. Geopolitical tensions were also cited as another contributor to the bearish start. North Korean and French election dominated the headlines last weeks. No doubt, these fears have pushed STI to as low as 3113.9 level during the week. However, presences of bargain hunters are still holding the market well as STI refuses to stay at the low side. The week closes at 3139.83 level despite strong selling pressure during the mid week. A total of 29.41pts was lost.

Cautiousness can continue this week as 1st quarter earnings reports will continue to be reported this week. Hence, the key to this week’s movement will likely to come from the Geopolitical situations. How will STI fair for this week?

Let’s analyse the chart.

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

Support: 3100 (200 week MA), 3010, 2960

 Resistance: 3170, 3240, 3350

Observations:

Candlestick – Black hammer like pattern.

Histogram – Multiple Rs. Possible bearish crossover.

RSI – At 68.1%. Out of overbought.

Stochastic – At 64.6%. Out of overbought. Bearish crossover confirmed.

Bollinger Band – Heading to mid band. Band contracting.

Conclusion:

Last week’s price action had confirmed that STI’s resistance level at around 3170 is holding well. Bearish candle formation indicates the bearish sentiment that STI is currently in. However, the long lower shadow of the candle is showing reluctance in dropping further. This means that STI might need more conviction in order to start trading lower. Based on the expectations for the past weeks, it is expected that STI will be seeking its support level at 3100 to test it. This support has yet to be tested and hence, it is important to confirm whether this bearish strength will be able to continue.

 

The mid-term indicators continued to trend on the bullish side despite the drop last week. However, MacD line is now attempting to trigger a bearish crossover which can lead to a bearish reversal. RSI exited the overbought region and this can be deemed as a bearish indication. Shorter-term indicators are clearly on the bearish side. Stochastic had confirmed its bearish crossover and this will likely to lead to further bearish momentum. Therefore, the momentum for STI now is currently bearish.

 

With the assurance that STI’s momentum is bearish currently, it is clear that STI will continue to attempt to reach its support level at 3100. This will mean that STI will have a downside range of more than 30pts. Due to the cautiousness of the market participants, the magnitude of the fall will unlikely to be a straight line down. Earnings report might bring some optimism in the market to slow down the drop. However, if the earnings report brings pessimism instead, 3100 level can be tested quickly and might even break. Breaking this support level will bring STI to a deeper correction towards its next support at 3010 level.

 

Despite the bearish outlook, there is still a ray of hope as last week’s candle show that there are still buyers supporting the market. If the Geopolitical tensions ease this week, optimism will enter the market again to push it towards the resistance level. Immediate resistance level stands at 3170. 3170 resistance level will likely to cap STI’s upside this week as cautiousness will likely to persist. However, if there are any positive results in the earnings report by companies, breakout can occur which will help STI to reach its resistance at 3240 level.

 

In conclusion, the Straits Times Index is likely to face further selling pressure this week despite its stubbornness to drop last week. Geopolitical issues will likely to be the key driving factor for STI this week. Immediate support level at 3100 will likely to be the target to test. It is unlikely for STI to break this support level this week as the market is still trading cautiously due to the earnings reporting season. Going beyond 3170 resistance level is also unlikely due to lacking of bullish readings in the charts. Therefore, STI will likely to stay within the range of 3100 to 3170 level this week.

 

What to watch out for this week:

1)      Testing of 3100 support level

2)      Testing of 3170 resistance level

3)      Breaking of 3100 support level

4)      Testing of 3010 support level

 

 Trading strategy to adapt right now:

-        Long traders should have already exited the market.

-        Shortists might want to take some cautious short position.

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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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