Bullish divergence spotted in STI, potential trend reversal.

Bullish divergence spotted in STI, potential trend reversal.
Bullish divergence spotted in STI, potential trend reversal.

Last week, STI had a volatile week as it not only dropped deeply, it also rebounded strongly. The week was started off with a strong gap down, reaching as low as 2698 level, due to weak US job data. But STI was quick to recover in the mid week and reached as high as 2775 level before it started to retrace back to close at 2737 level.  This volatile week ended with just merely 7.82pts down. Last Friday night, DJI managed to climb 93.24pts higher in anticipation of positive news over the weekend. China economic showed positive data while Spain managed to get loans from EU to help their banks. This positiveness might help STI to reach a higher level this week. Has STI formed a bottom last week? Or is it merely a dead cat bounce where further downside is to happen?

The chart will give us clues to make decisions.


Trend: Downtrend, 20ma down, MacD below 0


Support:  2730, 2680, 2640


Resistance: 2775 (20ma), 2830 (200ma),2880 (50ma)



Candlestick – Long black candle.

Histogram – 3Gs. Bullish divergence spotted.

RSI – Around 41.3%. Out of oversold. Bullish divergence spotted.

Stochastic – Around 66.3%. No bearish crossover.

Bollinger Band – Between Mid and Lower band. Band starting to squeeze slightly.



The volatile market action last week is seen hovering below and above 2730 support line. STI was also seen to bounce off before testing the support level of 2680. Its rebound had managed to break the gap resistance between 2715 – 2737 levels which showcased the bulls were in play. However, this bullishness was not strong enough to break 2775 resistance level as the sharp rise in price had attracted many sellers to enter the market. Therefore, STI eventually managed to end the week above 2730 support level. Such sharp rebound is usually caused by a shift in sentiment of the market. Has the bearish sentiment in the market starting to weaken? Given that positive news is being announced, will these news reverse STI’s current trend? The indicators should be able to give us further clues on this matter.


The mid-term indicators are starting to show some signs of changes after last week’s movement. The MacD line formed a bullish crossover which indicates a possible change in trend while RSI is clearly out of the oversold zone. With formation of bullish divergence in both Histogram and RSI, STI’s downtrend momentum has clearly been weakened and chances of a trend reversal are increasing right now. Short-term indicators continue to show short-term bullishness which might help STI to propel higher. But Stochastic is starting to show some weakness as the 2 lines are starting to narrow. Overall, STI might be starting its trend reversal formation and key levels are needed to be identified in order to confirm the change in trend.


In order for STI to turn uptrend, it must either form a higher high or higher low formation. Last week, STI formed a high after testing 2775 level. This high is not a higher high but instead, it is a lower high which indicates a downtrend movement. Hence, in order for STI to have a convincible uptrend, it must not only break the immediate resistance at 2775 level, it must also break the next high at 2830 level. This would mean that STI have to break 2 MA lines too, which is 20 & 200ma respectively. This could be a harder formation to form. The next alternative would be higher low formation. There is a good possibility for STI to form a higher low formation right now as it is now trading higher than the recent low of 2698 level. Furthermore, the immediate support level of 2730 level is also higher than the recent low. If STI manages to hold at 2730 support level, a new higher low level will be formed and uptrend formation will start to form too.


Despite positiveness, one must not forget that STI is still trending in downtrend. There is also a possibility of the bullish divergence signal to fail. Bullish divergence signal will start to fail if STI breaks the immediate support level of 2730 and confirmation of failure will happen when STI fails to hold at 2680 support. Therefore, 2680 support level is an important support level if STI still wishes to reverse its downtrend. However, currently, with positive news over the weekend plus bullish short-term indications, STI might have the strength to hold at its support level at least.


In conclusion, bullish divergence signal has given STI higher chance in reversing its current downtrend. Confirmation of uptrend formation can happen by breaking 2830 resistance level or rebounding off 2730 support level. These 2 are the key levels for STI to form an uptrend formation. However, STI is currently still in downtrend formation and there is still a risk in continuation of downtrend. If STI fails to hold at 2680 support level, the implications would be failure of bullish divergence signal and continuation of downtrend. Henceforth, with these expectations, one can start to accumulate long positions via counter trend strategy cautiously.



What to watch out for this week:

1)      Breaking of 2775 resistance level

2)      Testing of 2730 support level

3)      Breaking of 2830 resistance level

4)      Breaking of 2680 support level


Trading strategy to adapt right now:

-          Long traders can adopt counter-trend strategy to enter cautious long positions.

-          Shortists should start to reduce or even close their short positions as the odds for the downside is lowering.




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.