STI forming Uptrend, but retracement is expected first.

STI forming Uptrend, but retracement is expected first.
STI forming Uptrend, but retracement is expected first.

Last week, STI was struggling to trade higher as it faces profit taking pressure for the whole week. Despite selling pressure being seen, STI is still able to trade higher by 17.09pts. This was primary due to its strong gap up last Monday after the announcement of Greek’s election which the pro-bailout party won. This positiveness helped STI to surge as high as 2861 level on Wednesday before it start to crumble downwards. US’s decision to not step in to exercise the Quantitative Easing plan for the 3rd quarter impacted the market while speculations of whether Greek’s bailout plan feasibility had spooked the market at the end of the week. This lead selling momentum on Thursday and Friday but STI managed to recover some losses before the market close for the week. STI closed at 2828 level. Last Friday night, DJI managed to recover by 67.21pts. Has last 2 days of bearish movement by STI shaken the bullish trend? Or will it be an opportunity to take the long side currently?

 
 
Let’s analysis the chart to derive the answer.
 
 
Trend: Sideway with uptrend possibility, 20ma starting to turn up, MacD slightly below 0
 
Support:  Gap support 2814 – 2821, 2770 (20ma close), 2730, 2700
 
Resistance: 2830 (200ma), 2880 (50ma), 2915 (100ma), 2948
 
Observations: 
 
Candlestick – Long white candle.
 
Histogram – 2R. Bullish divergence confirmed. 
 
RSI – Around 73%. Overbought. Bullish divergence confirmed. 
 
Stochastic – Around 68%. Came out from overbought. Bearish crossover seen. 
 
Bollinger Band – Between Mid and Upper band. Band squeezing. 
 
 
Conclusion: 
 
STI was able to break out of the recent high of 2830 level last week and this had confirmed the possibility of uptrend formation for STI. However, STI seems to be unable to sustain this break out of resistance and came tumbling back to the break out level. This made one wonder whether STI has formed an uptrend or last week’s price action was merely a whipsaw one. Hence, it is crucial to determine how an uptrend’s price moves. In an uptrend, after a higher high is formed, higher low should be formed. Hence, there is a possibility that STI’s retracement for the last 2 trading sessions could be for higher low formation. Therefore, it will be crucial to examine where the higher low will be forming and will it be forming soon.
 
 
The mid-term indicators continued to be showing bullish strength with signs of them starting to turn uptrend. 20ma line is now starting to point upwards while MacD line is getting closer to turn positive. RSI entering into overbought region also brought positiveness to STI as trending above 50% level indicates an uptrend momentum. However, the short-term indicators were not showing bullishness. The Histogram and Stochastic were showing bearish momentum and this means that STI’s might continue to retrace in the short-term. Hence, from the indicators, we can see that the underlying strength of STI is bullish but in the short-term, STI will likely to retrace before it will go back to its bullish momentum again. 
 
 
Since, STI is deemed to continue its retracement in short-term, STI could have already formed a higher high formation after testing the high of 2861 level. It is important now to determine where STI will find a support to bounce off to form a higher low. Last Friday’s white candle formation gave us a clue that STI is refusing to trade lower. In fact, STI seems to break the gap support level between 2814 – 2821 level by opening below this gap support. However, bullish buyers were in the market to support the gap support and thus pushing STI back above the gap support. Hence, this gap support could be the immediate support level for STI to form a higher low. However, if STI fails to hold at this gap support, there is another support level for higher low formation. That will be the 20ma support line. 20ma support line is now trending at 2784 level. This could be a much better support level for STI to form its higher low formation. 
 
 
Given that the support levels that was analysed holds, STI upside possibilities should also be evaluated. Currently, it is quite uncertain of whether 2830 will still hold as a resistance level, but 2830 level can help us to determine whether STI will be continuing its uptrend movement. If STI is able to trade above 2830 level again, it will mean that STI will be seeking for the next resistance level to form a higher high. Currently, 50ma resistance line might be preventing STI from trading higher. It is currently trending around 2860 level and if STI is able to test this 50ma resistance line, it will mean that the bullish strength of STI is intact. Beyond this 50ma resistance line is 2880 resistance level which could be another possible level for STI to test but unlikely to happen this week.
 
 
In conclusion, STI is set to retrace further early this week but is expected to hold its support level well. The uptrend movement has been confirmed as the mid-term indicators are starting to show uptrend signs. Hence, this retracement could be a good retracement as a higher low formation is needed before STI can show further upside. The gap support between 2814 – 2821 levels seems to be holding well currently but if it fails to hold, we might see STI heading lower to test its 20ma support. This 20ma support line which is now at 2784 level is expected to hold STI currently. If these support levels hold well, STI might start to rebound back to 2830 resistance level and if it manages to trade above this resistance level, we might see STI test its 50ma resistance line at 2860 level. Henceforth, this will be a crucial week for STI to continue its uptrend movement.
 
 
What to watch out for this week:
 
1) Testing of 2814 – 2821 gap support level
2) Testing of 2784 20ma support line
3) Breaking of 2830 resistance level
4) Testing of 2860 50ma resistance line
 
 
Trading strategy to adapt right now:
 
- Long traders can make use of the retracement to take up long positions as long as the counter is showing uptrend formations.
- Shortists whom has did counter-trend short last week should actively take profit on their short positions this week.
 
 
 
*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.
Please consult your respective advisers.