Brexit confirmed. Bloodshed in Straits Times Index to continue. | Jay Chia - Your Financial Mentor

Brexit confirmed. Bloodshed in Straits Times Index to continue.

Brexit confirmed. Bloodshed in Straits Times Index to continue.
Brexit confirmed. Bloodshed in Straits Times Index to continue.

Last Friday around lunch hour, Britain confirmed its referendum to exit from the EU. It was a close fight as the result was just about 3% difference. Straits Times Index reacted strongly on Friday as the vote counting progresses during the morning. From confidence of Britain remaining EU till ending decision of leaving EU; this caused STI to swing a big range of 2715 – 2807 levels during the day. In the early week, there was confidence in the air that Britain will remain in the EU. Hence, STI was seen climbing to as high as 2815 level on Wednesday. However, it faced resistance and started to come down. Trading for the first four days of the week had been cautious. In the aftermath, nations of EU are shaken. Some hailed Britain for the bold move. France is being speculated to be called for a referendum for the exit of EU. Others were criticising for the move and scrambled to find new directions. It is known that it will be better for Britain to exit EU as quickly as possible so as to help settle the uncertainty in the markets currently.

With so much uncertainty and fear in the market, how should we expect STI to move this week? Bloodshed had happened. How much downside should we expect?

Trend: Possible sideways to downtrend, 20 wma flatten, MacD near 0 level.

Support: 2670, 2620, 2530

 Resistance: 2740, 2800 (20 week MA), 2900 (50 week MA), 2950

Observations:

Candlestick – Black candle with longer upper shadow.

Histogram – 2Rs. MacD close to 0 line

RSI – At 36.2%. Below 50% line.

Stochastic – At 34.3%. Bearish crossover confirmed.

Bollinger Band –At mid band. Band squeezing.

Conclusion:

Brexit had indeed shaken the market and caused traders to frantically exit the market. 2800 level has also proven to be a strong resistance level which turns out to be a possible lower high formation for STI. Support at 2740 level seems to be compromised after last Friday’s movement. But if catered for some whipsaw action, STI must go lower than 2713 level in order to confirm a lower low formation. Hence, it is still unclear is STI had broken down for a lower low formation. When lower low is being confirmed, it will mean that STI is forming a new downtrend formation which can lead to another few waves of downtrend actions. Therefore, for this week, we need to identify the probability of STI breaking down for a lower low formation.

 

The mid-term indicators are starting to lose its bullish momentum currently. Macd line is now getting away from the 0 line and might even perform a bearish crossover. When bearish crossover over happens, it will sign an end of bullish momentum. RSI is now confirmed to be below the 50% line which also shows signs of bearishness. Hence, the mid-term momentum might be on the bearish side currently. Shorter-term indicators are now clearly on the bearish side now. Histogram and Stochastic had confirmed its bearish signals. This means that in this week, further bearish actions will likely to continue till oversold readings are seen.

 

With bearish confirmation from the indicators, STI will likely to suffer further selling pressure early this week despite its large drop last week. The recent low at 2713 level might be threatened to be broken this week. Once this low is being broken, STI will be seeking for its next support level at 2670 level. However, as bearish momentum is usually fast and furious, support at 2670 level might not be able to hold well. Hence, STI might also be seeking for its next support level at 2620 level. These 2 support levels might be able to help STI to cushion its losses for this week at least.

 

The probability of a rebound to happen is definitely on the low side currently. If rebound happens, it will only mean that STI is attempting to trade in a sideways manner. It must first be able to recover above 2740 level before a meaningful rebound can happen. Otherwise, bearishness will still prevail. The next upside cap for STI is at 2800 level which have been proven to be a strong resistance level for the past weeks. Therefore, the odds are definitely not on the upside currently.

 

In conclusion, the Straits Times Index is now clearly facing bearish momentum. Risk of breaking into lower low formation is high right now. 2713 level will the key downside confirmation level. Once this level is broken, STI will be heading towards the next 2 support at either 2670 or 2620 levels. These 2 support levels will likely to give STI some downside cushion for this week. Chances of rebound are definitely low right now. Any rebound will be capped by 2800 level. Therefore, it is better to stay sidelines till the market stabilises.

 

What to watch out for this week:

1)      Breaking of low of 2713

2)      Testing of 2670 support level

3)      Testing of 2629 support level

4)      Testing of 2800 resistance level

 Trading strategy to adapt right now:

-        Long traders should stay sidelines.

-        Shortists can consider to take breakdown short positions.

 

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