Straits Times Index broke strong resistance of 3100 level

Straits Times Index broke strong resistance of 3100 level
Straits Times Index broke strong resistance of 3100 level

Straits Times Index managed to have a significant breakthrough last week. The strong resistance of 3100 level was broken. This bullish strength was contributed by the strong positive vibe from local economic data to the belief of the impact of Trump’s promised US policies. There were moments during the week where the market pushing the banks with anticipation of US interest rate hikes. But what really sustained the rally are the strong earnings posted by the offshore marine counters like Sembcorp Ind. Therefore, STI is able to close its week above 3100 level with 29.92pts up. Ending at 3137.57 level.

The key concern by the market participants, including me, is whether this breakout of resistance sustainable. The market rally has been going on for quite some time. Hence, cautiousness is on the cards right now. How should we react currently?

Let’s review STI’s chart together.

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

Support: 3100, (200 week MA), 3010, 2960 (20, 100 week MA)

 Resistance: 3160, 3240, 3350

Observations:

Candlestick – White candle.

Histogram – 3 Gs. No bearish crossover yet.

RSI – At 77.5%. Overbought.

Stochastic – At 96.4%. Overbought. No clear bearish crossover.

Bollinger Band – At upper band. Band expanding.

Conclusion:

Straits Times Index broke its strong resistance which confluences with 200 week MA line at 3100 level last week. This breakthrough means that STI is now attempting to head towards its next resistance at 3160 level. The key to identify the sustainability of breakout is through volume analysis. Last week’s price action did not come with strong traded volume. Therefore, this breakout can be pretty suspicious. False breakout action might happen. For further assurance, it is better to confirm with the indicators.

 

The mid-term indicators have gotten stronger after last week’s movement as the bullish momentum continues. Overbought situation has gotten deeper and extended. Shorter-term indicators has reverted to bullish indication but overbought readings continued to alert. For now, it is clearly showing that the bullish momentum is still intact but cautiousness is coming from the overbought indication.

 

With this, it is likely that STI will face further bullish movement for this week as short-term indicators are not triggering any bearish signals. Therefore, this bullish momentum can help to push STI towards its next resistance at 3160 level. This will lead to the next question; will STI go beyond 3160 level? What is lacking for STI right now is a meaning retracement to release the pressure of overbought signals. Therefore, there is an opportunity for STI to face resistance at 3160 level and start to retrace. This action will cause STI to form its higher high formation which will be natural progression.

 

Despite the bullishness, the concern of false breakout by STI is quite high. Given that the overbought reading has been extended, the risk of retracement action to happen during the week is high. Therefore, it is also important to be prepared for such situation. The key level to confirm a false breakout to happen is the resistance turn support level or 3100 level. If STI fails to hold above 3100 level this week, it will mean that the breakout is false and retracement actions will then follow through. This can lead to testing the support level at 3010 or a much stronger support at 2960 level.

 

In conclusion, the Straits Times Index is now currently sitting on the fence. Although the odds seems to be tipping towards the bullish side for this week, the risk of retracement is also in the cards. The key will be looking at the resistance turn support of 3100. If this support level holds this week, it will mean that STI will be attempting to reach resistance at 3160 level. But if it fails to do so, it will be retracing towards 3010 or 2960 support level. Hence, it can be a crucial week for STI this week.

 

What to watch out for this week:

1)      Testing of 3100 support level

2)      Breaking of 3100 support level

3)      Testing of 3010 support level

4)      Testing of 3160 resistance level

 

 Trading strategy to adapt right now:

-        Long traders should take partial profits at resistance level.

-        Shortists whom can take risk can start watching out for retracement actions.

 

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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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