Uncertainty and Volatility to persist in STI.

Uncertainty and Volatility to persist in STI.
Uncertainty and Volatility to persist in STI.

STI experienced a volatile week last week as economic news were affecting the market sentiment. First, news of Spain requiring a bailout package shook the market during the early week. This caused STI to open the week with 33pts lower and hitting as low as 2973 level. Despite expectations for STI hitting as low as 2950 level, STI refused to test that level during the week. This was partially due to the positive comments by both US and China leaders on the possibility of stimulus. Therefore, STI managed to recover from the weeks low and close at 2998 level for the week. STI ended 17.04pts lower for the week. Last Friday, DJI managed to climb 187.73pts. Will STI be able to head higher? Has STI completed its retracement last week?

Let’s look into STI’s chart.

Trend: Uptrend, 20ma poise up, MacD above 0

 

Support:  3000 (20ma), 2950, 2910 (100ma)

 

Resistance: 3030 (Weekly high), 3070, 3130

 

Observations:

Candlestick – Long black candle.

Histogram – Many Rs. No bearish divergence yet.

RSI – Around 65.5%. Rebounded off 50%. Slight bearish divergence.

Stochastic – Around 42.2%. Bullish crossover seen recently.

Bollinger Band – Between mid and upper band. Band squeezing.

 

Conclusion:

STI started the week with a gap down and bearish black candle which immediately broke the support level at 3000 level. Breaking of this support level indicated a downside movement towards 2950 level but STI did not manage to test this support level during the week. Gap resistance coupled with support turned resistance of 3000 level prevented STI from going higher during the mid of the week. Last Friday, strong gap opening was seen but the bullish opening failed to maintain the bullishness as many traders avoided holding long positions over the weekend. Friday’s closing at 2998 level makes one wonders if 3000 level is a support or resistance level. Therefore, it is important to look at the indicators to get further assurance of this coming week’s direction.

 

The mid-term indicators were generally still showing bullish movement as MacD is still above 0 while 20ma is still pointing upwards. However, MacD’s bearish crossover indicated a possibility change in trend as the uptrend is starting to weaken. RSI also showed slight bearish divergence signal which enforces the weakening in the uptrend. In the short-term side, the histogram continues to show bearishness but the Stochastic had triggered a bullish crossover. This shows a mixed momentum in the current short-term sentiment. Therefore, it is very hard to identify what will be likely direction for STI in this coming week.

 

With the uptrend still intact and showing weakness, it is important to identify where will be the key levels for the uptrend to be sustainable. Currently, 3000 level can be either a support or resistance level for STI as it is still unclear despite analysis from the short-term indicators. With last Thursday’s rebound action, it is certain that STI might have formed a higher low formation. This higher low formation had caused the 20ma to continue to rise higher despite the retracement seen last week. This 20ma support line will now act as a key warning line to determine if STI is indeed about to form a downtrend movement. If STI breaks this 20ma line, the recent low of 2973 level will be a very important level. 2973 level is where the higher low of the uptrend is being formed. If 2973 level breaks, it will indicate that STI will be forming a lower low which a sign of downtrend formation.

 

Although, considerations are being made on the bearish side, upside scenario should also be considered as STI is still in the uptrend momentum. 3030 resistance level will still be a major resistance level for STI as it is a weekly higher high level. If STI manages to break this major resistance level, it will indicate further upside for STI’s current uptrend momentum which might lead it to reach the next resistance of 3070. A stronger resistance level for STI to test will be at 3130 level. As Stochastic had indicated bullish crossover while STI is showing higher low formation, there is also very good chance of STI to adopt this scenario for this week.

 

In conclusion, STI could have finished its retracement last week and might continue to form uptrend movements. If STI manages to break 3030 major resistance level, it will indicate upside towards 3130 level. But it will likely be capped at 3070 resistance level for this week if 3030 level breaks. However, with weakness being seen in the mid-term indicators, STI is also running a risk of trend reversal. 20ma support line will be a key warning line to indicate whether STI will have a likelihood of turning downtrend. If 20ma fails to hold as support, it would mean that STI might have a high chance of breaking for a lower low formation. The recent low of 2973 level will be an important level to watch out for. If STI breaks 2973 level, it will confirm the bearish divergence signal and indicates that STI is going for a downtrend movement. Henceforth, STI is coming to a crucial week whether it will determine the direction for the coming weeks ahead.

 

 

What to watch out for this week:

1)      Testing of 3030 resistance level

2)      Testing of 2973 support level

3)      Testing of 3070 resistance level

4)      Testing of 2950 support level

 

 

Trading strategy to adapt right now:

-          Both long and short traders should remain cautious and reduce their exposure as the direction of market is uncertain now.

 

 

*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.