Straits Times Index sustains its uptrend movement

Straits Times Index sustains its uptrend movement
Straits Times Index sustains its uptrend movement

Bullish sentiment continued for Straits Times Index last week. Market participants continued to be positive on the direction of the market, pushing STI to as high as 3331.13. High offer price for Global logistic trust has brought confidence in the market that there is more value in the market to be unlocked. Rowsley got it price nearly doubled as its major shareholder, Peter Lim, decided to inject his medical assets into the company. This streak of news had lifted the sentiment of the market. Profit taking was seen on Thursday but it was quick to be countered on Friday. Therefore, STI ended the week with 26.69pts higher, closing at 3314.12 level.

Movements last week had brought further confidence in the uptrend movement. However, some were still worried by the sudden and quick profit taking actions that happened last Thursday. Will the bullish sentiment continue to sustain this week or profit taking actions will start to creep in?

Let’s evaluate the chart.

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

Support: 3270, 3190 (20 week MA), 3100 (200 week MA)

Resistance: 3350, 3450, 3530

Observations:

Candlestick – Short white candle with both upper and lower shadow.

Histogram – Bullish signal confirmed. Bearish divergence still intact.

RSI – At 69.6%. Testing overbought line

Stochastic – At 77%. Heading towards overbought line.

Bollinger Band – Out of upper band. Band expanding.

Conclusion:

With STI continuing its bullish movement last week, it had given an assurance that its uptrend movement will continue. This means that STI will have higher chance to move higher as long as the bullish conviction remains strong. However, the candle that was formed last week lack of conviction. The candle was short and formed longer upper shadow. This means that some profit taking actions are preventing STI from trading higher. These kinds of movements are reasonable as the market start to approach its resistance level.

 

The mid-term indicators continued its bullish readings last week. MacD lines are getting closer to each other and this can lead to a bullish crossover. This requires another bullish week in order to trigger the signal. RSI is coming closer to the overbought line which further indicates bullish signal. Shorter-term indicators were also looking good. Histogram continues to rise while Stochastic rise towards its overbought line. These readings are clearly showing the bullish momentum will be sustainable.

 

With clear bullish indication from the indicators, it is clear that STI will likely to continue to attempt to trade higher this week. This means that it will be approaching its resistance level at 3355 level. 3355 resistance level will be the first resistance level that it can test after the breakout. Upon reaching this resistance level, the indicators will likely to be trending in the overbought zone. This will lead to the resistance level holding firmly and attract profit taking pressure to it. Hence, STI is unlikely to go beyond this resistance level and head for the next resistance at 3450 level.

 

Despite the bullish readings, we should not be caught in surprise when bearishness seeps in. Based on last week’s movement, it seems that STI is facing a resistance at 3310 level. However, we can’t be sure of this resistance as it only triggers a day of retracement which was quickly countered the next day. The key bearish movement to watch is whether STI will be sustainable above 3270 level. 3270 level is the breakout level that happened on the previous week. Failure to stay above this breakout level indicates that STI’s uptrend momentum might be shaky.

 

In conclusion, it is clear that the Straits Times Index will continue to attempt to trade higher. Immediate resistance level at 3355 level will be its target for the week. However, it will be hard for STI to go beyond 3355 level as it is getting closer to overbought condition. Therefore, upside should be capped at 3355 level. Bearishness does have a chance to set in this week but as long as 3270 support level holds, STI will still be able to retain its uptrend status.

 

What to watch out for this week:

1)      Holding above 3270 support level.

2)      Testing of 3355 resistance level.

3)      Breaking of 3270 support level.

 

 Trading strategy to adapt right now:

-        Long traders can start looking for long opportunities.

-        Shortists should avoid the market.

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