Concerns pile up in Straits Times Index

Concerns pile up in Straits Times Index
Concerns pile up in Straits Times Index

Straits Times Index continued another week above its support at 3190 level. The market started the week by rebounding strongly on Monday. But it faced a minor resistance at 3245 level which prevented STI from going higher. Strong selling pressure sipped in on Tuesday which stopped STI from going further. The focus of the market started to shift towards the interest rate hike of US. STI adjusted downwards further as it prepared itself for any adverse announcement. After the announcement on Wednesday night, STI reacted bearishly towards the news on Thursday. However, it stayed above 3200 level and refused to go lower. To end the week, STI managed to recover some of its lose grounds; ending at 3220.25 level with 10.69pts up.

Concerns in the market seem to be mounting right now; ranging from North Korea tension to US interest rate hike. Will the market continue to be news sensitive this week?

Let’s analyse the chart.

Trend: Uptrend formation looking compromised, 20 wma flatten, MacD above 0.

Support: 3190, 3100 (50 & 200 week MA), 2960

Resistance: 3270 (20 week MA), 3355, 3450

Observations:

Candlestick – Black spinning top.

Histogram – Multiple Rs. MacD heading downwards. Bearish divergence still intact.

RSI – At 48.3%. Bearish divergence still intact.

Stochastic – At 16.3%. Oversold.

Bollinger Band – Testing lower. Band contracting.

Conclusion:

STI’s ability to stay above 3190 level last week is an indication that the support level at 3190 is holding well. Although uptrend formation could have been compromised, STI’s trend could have changed to sideways instead of downtrend. The candle has indicated some attempts to rebound above 3270 resistance level. However, the bearish momentum seems to be still dominating the market. The key question right now will be whether STI will be consolidating at this key support level and rebound for a sideways movement or will it break this key support level to form a downtrend formation. It is currently important to anticipate these 2 scenarios currently.

 

The mid-term indicators are getting weaker over the week as the momentum is being threatened to reverse to the bearish side. RSI continues to be below 50% level but there is a rebound last week which can help RSI to return above 50% level. However, if it is resisted by 50% level, it will mean that the bearish momentum is taking control. Shorter-term indicators continued to trend on the bearish side despite its slight rebound last week. Stochastic continues in its oversold region but yet to show a clear bullish crossover signal to trigger a possible rebound. Hence, shorter-term bearish momentum will likely to persist.

 

With bearishness likely to continue this week, it will mean that STI’s support level at 3190 will be tested again. With indication of the candle pattern last week, it seems that STI will likely to continue to consolidate around 3190 – 3200 levels this week. This consolidation will help to firm up the support at 3190 level before a rebound action can take place. Even if STI is able to rebound this week, its upside action will likely to be capped by its resistance level at 3270 as the 20 week MA resistance level is also hovering close to that level. Therefore, it will be hard for STI to rebound beyond 3270 level this week without a firm consolidation at 3190 level.

 

However, to prepare for the worst case scenario, it is also possible for STI to break its support at 3190 level. If STI is unable to stay above 3190 level this week, it will mean that the uptrend have reversed to downtrend formation. With downtrend formation, STI will have a deeper downward movement towards its next support at 3100 level. It is very unlikely for STI to break below 3100 level for now as it has strong confluence with both 50 & 200 week MA support line. Therefore, downside risk is not that high after breaking this key support level.

 

In conclusion, the Straits Times Index is likely to continue to face bearish pressure this week. However, it is unlikely to be pressed below 3190 level. Consolidative movements will likely to occur this week ranging from 3190 – 3270 levels. Going beyond the upper or lower limits of this range is unlikely to happen. But if STI fails to hold its lower range at 3190 level, it will indicate a reverse in trend to downtrend. This downtrend can push STI towards 3100 support level. Therefore, STI might not be trading in an exciting manner but it is crucial for further movements.

 

What to watch out for this week:

1)      Testing of 3190 support level.

2)      Breaking of 3190 support level

3)      Testing of 3100 support level.

4)      Testing of 3270 resistance level.

 

 Trading strategy to adapt right now:

-        Long traders whom can take risk can consider short-term rebound trades.

-        Shortists can consider on the short side if the support fails to hold.

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