Daily Market Opinion for 5-Jun-2012

Daily Market Opinion for 5-Jun-2012
Daily Market Opinion for 5-Jun-2012

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STI started the week by gapped down strongly which broke the immediate support level of 2730 without giving it chance to hold as a support. This gap down action was mainly due to the reaction to US weak job data last Friday. Panic was expected to be happening during the day but the selling actions were lack of strength. There were attempts during the morning to cover the gap but traders make use of the rebound to sell down. After the rebound attempts, STI just remained flat throughout the day and closed gradually lower than the opening. STI closed at 2698 level with 46.81pts down for the day. Last night, DJI managed to close with only 17.11pts lower despite selling pressure being seen in the earlier trading session. Will STI head lower to test 2680 support level? Or will STI attempt a rebound to close the gap?                                                                                                                                                                  

                                                               

STI gapped down and closed with a black candle with upper shadow. A gap resistance was formed and its resistance will range from 2715 – 2737 levels. As the previous support level at 2730 is broken, 2730 level will now turn into a resistance level. Since 2730 resistance level is within the gap resistance between 2715 – 2737, this resistance range will likely be stronger. Looking at the short-term indicators, yesterday’s price action has confirmed the bearish signals and this might lead STI to head lower instead of rebounding. Therefore, STI will likely to head lower towards its next support level of 2680. 2680 should be a firm support level where STI will be able to stage a proper rebound.

                                                                                                                                                                                                                               

The banks traded lower as they will more likely to react strongly to economic concerns. Uob and Dbs gapped down yesterday and this action confirmed their bearish signal. This confirmation indicates that Uob & Dbs are likely to head lower but the presence of gap might trigger gap covering rebound for them. Ocbc was the special one; although it gapped down during opening, it managed to cover the gap intraday and closed with a white inverted hammer. Ocbc might have a higher chance of rebound as it might trigger bullish crossover in the stochastic indicator. The properties were not spared from the gap down yesterday also. F&N gapped down strongly and managed to test its 200ma line at 6.20 level yesterday. 200ma support line held well and caused F&N to close with a white candle. F&N might have a higher chance to rebound to close its gap resistance if the 200ma support line continues to hold.

                                                                                                                                                                                                                               

The offshores experienced one of the deepest gaps down yesterday as they broke their recent lows. Sembcorp was the only strongest one that did not drop deeply. Sembcorp is still close to its 20ma resistance line and did not break its recent low yesterday.  If Sembcorp fails to hold its recent low of 4.68 level, it might suffer the same fate as Kepcorp and Sembmar. The commodities continued their losing streaks yesterday as they yet to find catalyst to encourage buyers to buy into them. Most of them ended with gap resistance but Noble grp was the only firmer one. Noble grp managed to close above its recent low and maintained it support despite the bearish sentiment. It had close with a white candle and it might rebound towards 20ma line at 1.11 level again.

                               

In conclusion, the gap down action yesterday was a broad-based one. Most of the sectors were showing continuation of its downtrend movement and they are likely to continue downwards. However, some counters ended with white candles at their support levels and they might attempt to rebound to test their gap resistance. Hence, STI can either attempt to rebound to close the gap or it can head lower today. The gap resistance between 2715 – 2737 levels are expected hold as the selling momentum is still intact and it also confluences with a horizontal resistance of 2730 level. Once this gap resistance level is closed, STI will head towards 2680 support level again.  

 

Long trader should continue to wait till the next support level is being tested. Shortist might have to stay aside as the downside might be getting limited. However, if the market attempts to rebound to cover the gap, short positions can be selected based on its risk and reward ratio.