STI's uptrend likely to continue but trend reversal risk is still possible.

STI's uptrend likely to continue but trend reversal risk is still possible.
STI's uptrend likely to continue but trend reversal risk is still possible.

Last week, STI faces bullish reaction in the market as fears of crisis subsided after speculations of stimulus is to be emplaced. This brought buyers to enter the market on Monday which lead STI to test 3030 major resistance. Despite a gap down start on Tuesday, the buyers still managed to push STI above 3030 level with strong volume. Such bullish movement have confirmed the breakout of the major resistance. For the last 5 days of the week, STI held well above 3030 level and this resistance level could have turned into support. Eventually, STI closed at 3051 level with 52.84pts higher for the week. Last Friday, DJI ended up strong with 217.29pts higher.  Will STI be able to continue its upside this week?

Let’s evaluate STI’s chart.

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

 

Support:  3030, 3000 (20ma), 2970, 2950

 

Resistance: 3080, 3130, 3160

 

Observations:

Candlestick – Long white candle.

Histogram – 1G after 1R. No bearish divergence yet.

RSI – At 63%. Resisted by 70%. Bearish divergence.

Stochastic – At 86.9%. Overbought. Bearish crossover seen recently.

Bollinger Band – Between mid and upper band. Band squeezed and starting to expand.

 

Conclusion:

STI strong start last week helped STI to test the 3030 major resistance level. The strong gapped down the next day lead STI to test the support level at 3000 level which confluences strongly with 20ma line. This confirms that the support level at 3000 level held very well and a higher low formation has been formed over at that level. Immediate breakout of 3030 major resistance level also assured that STI will be continuing its uptrend movement towards the next resistance of 3080 level. Although the breakout of the major resistance level is convincing, the price action after next few days seems to be sluggish and lack of bullish strength. Therefore, understanding of the current momentum is important which the indicators can help us to understand it.

 

The mid-term indicators are still bullish despite some weakness indication that was seen last week. RSI continues to show bearish divergence signal and this time round, it has clearly indicated the divergence with 3 lower highs formation. Therefore, mid-term momentum is getting weaker with possibility of trend reversal. The short-term indicators were showing mixed signals as they were struggling to show a clear short-term momentum as last week’s movement was plague with volatility. Stochastic is currently in overbought position with a possible bearish crossover signal. However, Histogram could be indicating strength in bullish momentum.  

 

As the indicators indicate that the uptrend is still uptrend but weakening, it is important to identify where the high will likely be formed. Short-term indicators do indicate bullish strength to be seen for the early week but the upside will likely be capped. Therefore, the immediate resistance level will likely be the level where STI might form a high. The immediate resistance level of STI stands at 3080 level which will likely to cap STI’s upside early this week. If this resistance level is being tested and a high is formed, STI will likely to start its retracement towards 3030 support level again. On the more positive aspect, if STI is able to breaks 3080 level, it will be heading for the next resistance level of 3130. These will be likely levels that STI will trade in for this week.

 

However, despite expectations of bullish movement this week, bearish divergence signal is present in STI’s current trend. Hence, it is important to identify where will be key support level to confirm the reversal of STI’s current uptrend movement. The immediate support level of STI stands at 3030 level and if STI is able to stay supported at this level, it will indicate that its uptrend movement is still intact. However, if STI fails to hold at 3030 level, it will be heading towards its 20ma line at 3000 level which is also a horizontal support level. 3000 level is also the level where STI forms a higher low formation. Therefore, if STI fails to hold at this key support level of 3000, it will mean that STI’s trend have reversed to downtrend.

 

In conclusion, STI strong bullish movement last week has encouraged the market to head higher this week towards the immediate resistance of 3080 level. There are good chances of STI to head higher towards the next resistance of 3130 level. However, the existence of bearish divergence formation will likely to limit STI’s upside. The risk of trend reversal is still around and the key support level is being identified. The key support level for STI to retain its trend is at 3000 level. If STI fails to hold at this support level, it will indicate a deeper downside movement. Therefore, STI will continue to stay bullish for this week and slight retracement is to be expected for this week. As long as the key support level holds, STI will not be running a risk of trend reversal.

 

 

What to watch out for this week:

1)      Testing of 3080 resistance level

2)      Testing of 3030 support level

3)      Testing of 3130 resistance level

4)      Testing of 3000 support level

 

 

Trading strategy to adapt right now:

-          Both long and short traders should continue to remain cautious. Long trader should choice to reduce their long exposure while Shortist should be patient to wait for a clear bearish signal.

 

 

*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.