Bearish sentiment to persist in STI this week.

Bearish sentiment to persist in STI this week.
Bearish sentiment to persist in STI this week.

STI started last week by attempting to rebound from its recent low level but it faced gap resistance between 2798 – 2812 levels. STI failed to break the gap resistance level and instead started to retrace back to its recent low. The main cited reason for the retracement was due to the concerns of the Greeks withdrawing from the Euro zone. Last Friday, STI broke its recent low and nearly tested the immediate support level which ended at 2745 level. STI was down 27.04pts for the week with weakening trading volume. Last Friday, on the US side, US announced weak job data which shook the DJI, causing it to end 274.88pts lower. Many expect that STI’s opening will be affected by the bearish sentiment of US market this week. Will STI be able to stay at its immediate support level of 2730? Or will it head much lower this week?

 

Let’s get our answers from the chart.

 

Trend: Downtrend, 20ma down, MacD below 0

 

Support:  2730, 2680, 2640

 

Resistance: 2790, 2850 (20 & 200ma),2880

 

Observations:

Candlestick – Black candle with lower shadow and little upper shadow.

Histogram – 1R after many Gs. Bearish signal. No divergence.

RSI – Around 29.7%. Slightly oversold. No divergence.

Stochastic – Around 28.6%. Bearish crossover.

Bollinger Band – Between mid and lower band. Band starting to squeeze slightly.

 

Conclusion:

Last week’s market actions have helped STI to derive a decisive movement as it ended lower for the week. STI’s attempt to rebound during the early week has some indication of bargain buyers. However, these bargain buyers were greeted with further downside for the rest of the week and many could have exited the market last Friday as STI broke its recent low. Another possible reason for early week’s rebound is due to the gap covering effect. Henceforth, the key for STI right now is to determine whether those bargain hunters will be coming back to support the market for a rebound when STI test its support level. Indicators should give us clues on how STI will behave for this week.

 

The mid-term indicators continued to show bearish readings which indicates that STI’s downtrend should be continuing. However, the MacD line starts to exhibits a possible crossover with the signal line which can indicate a possible reversal in trend might be happening soon. In order to confirm this reading, STI might be able to show an obvious crossover before one can conclude trend reversal possibility. RSI failed to stay above the oversold zone and started to creep into oversold zone again. This could be a bearish sign as entering oversold zone indicates further downward pressure to be expected. The short-term indicators were triggering bearish signals after Friday’s downward movement. This indicates that STI is likely to go down further during its early week in the short-term. Hence, with more bearish readings then bullish readings, STI will likely to see a bearish week for this week.

 

With bearish expectations for this week, support levels should be indentified to determine how low STI can head towards. The immediate support level for STI currently stands at 2730 level. 2730 level is a minor support level where it lacks of multiple confluences in the history. Given that the short-term indicators triggered bearish signals, STI will likely break this support level and head for the next stronger support level. STI’s next support level will be at 2680 level and this support level could be a much stronger support level for STI to hold. Hence, 2680 level could be the best level for STI to form a lower low formation.

 

On the other hand, if the short-term indicators fails to confirm its bearishness and STI started to rebound, STI will likely to face 2790 resistance level again which will prevent STI from further upside. This positive scenario is very unlikely right now given that the bearish sentiments around the world will likely to jeopardise any positive sentiment this week. Henceforth, it will be more reasonable put more considerations on the bearish side.

 

In conclusion, STI will most likely head lower this week as the indicators were showing bearish signals. Immediate support level of 2730 level likely to be tested this week and could be broken easily as this support level is deemed to be a weak one. The next stronger support level stands at 2680 level and this level could be tested this week. 2680 level will most likely be helping STI to form its lower low level before it can continue its downtrend again. Currently upside possibility for STI is very unlikely and if it happens, it will still be capped by 2790 resistance level. Henceforth, do expect selling pressure deepen further for this week.

 

 

What to watch out for this week:

1)      Testing of 2730 support level

2)      Breaking of 2730 support level

3)      Testing of 2680 support level

 

Trading strategy to adapt right now:

-          Long traders should wait patiently till a clear reversal sign is being formed at major support level.

-          Shortists can execute short position based on breakout strategy if there is still good risk and reward. Partial profits should be taken when targets are met.