Straits Times Index starting to show signs of weakness.

Straits Times Index starting to show signs of weakness.
Straits Times Index starting to show signs of weakness.

The Straits Times Index attempted to trade higher last week as the market entered deeper into the earnings reporting season. The week started with profit taking action but buyers were quick to snap up the sellers the next day. Further buying continued but it failed to reach the resistance at 3255 level; reaching a high of only 3249 level. With lacking of fresh catalyst to push the market higher, sellers dominated the market at the end of the week. This pushes STI lower, ending at 3326.52 level with 4.23pts down for the week.

As STI is facing resistance right now, how will STI behave this week? Will there be opportunity for STI to be able to break 3255 resistance level instead?

Let’s analyse the chart.

Trend: Uptrend formation, 20 wma up, MacD above 0.

Support: 3270, 3190 (20 week MA), 3100 (200 week MA)

Resistance: 3355, 3450, 3530

Observations:

Candlestick – Short black candle.

Histogram – Many Gs. Bearish divergence still intact.

RSI – At 73.2%. Overbought.

Stochastic – At 84.8%. Just entered overbought. Possible bearish crossover.

Bollinger Band – At upper band. Band expanding.

Conclusion:

STI’s bullishness have start lose its momentum as it starts to test its resistance at 3255 level. This shows that the resistance at 3255 level will likely to hold and prevent STI to head higher. However, the candle indicates that the bullish buyers were still holding up the bullish momentum well. But it also indicates that the sellers are starting to enter the market. Therefore, there will be a better chance for bearishness to set in this coming week.

 

The mid-term indicators continued stay on the bullish side despite closing slightly lower. However, the bearish divergence signal is still intact. Furthermore, overbought signal is seen in RSI. Hence, the upside will likely to be limited right now. Shorter-term indicators are still on the bullish side. However, possible bearishness might set in if STI continues to face bearishness this week. Stochastic is now at overbought zone while possible bearish crossover can happen.

 

With these readings from the indicators, it is clear that STI is facing overbought currently. Furthermore, Stochastic is starting to show sign of weakness. If STI is to close negatively this week, bearish signal will likely to happen. If this happens, retracement actions are to be expected for the next few weeks. This will also mean that the resistance at 3325 level will be holding firmly. With expectations of retracement actions, STI will then head back to its support at 3270 level. This support level will likely to be a strong support level.

 

Breaking 3270 support level is unlikely to happen for now. But if it breaks, it will likely to affect the integrity of STI’s uptrend momentum. Immediate support will be at the 20ma line at 3230 level. Breaking 20 weekly MA line will further confirm the breakdown of the uptrend momentum. Despite this, strong support should be at 3190 level. Of course, upside for STI currently will still be limited by 3355 level. Going beyond it will require strong bullish momentum which is not shown from the indicators currently.

 

In conclusion, the Straits Times Index likely to continue to hover within the range of 3270 – 3355 levels. 3355 resistance level might be test again but breaking this resistance level is unlikely at it is currently in the overbought zone. Furthermore, with possible bearish indications, retracement actions are more likely to happen this week. Downside will be limited by the strong support level of 3270 level. Hence, tight market range is expected to happen this week.

 

What to watch out for this week:

1)      Holding above 3270 support level.

2)      Testing of 3355 resistance level.

3)      Breaking of 3270 support level.

 

 Trading strategy to adapt right now:

-        Long traders can start looking for long opportunities.

-        Shortists should avoid the market.

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