Straits Times Index to hover around 3170 level

Straits Times Index to hover around 3170 level
Straits Times Index to hover around 3170 level

It has been a quiet week for Straits Times Index as market participants remains cautious on the outcome of the visit of US president Trump to China. Talks between the 2 countries are ongoing currently but early reports are showing that they are building up with some trade ties; in oppose to what was widely speculated. The week started with positive sentiment that was quick to lose its steam. Bearish pressure was seen on Wednesday but there are bargain hunters supporting STI at 3170 level. This action repeated for the rest of the week and it helped STI to stay above 3170 level. Trading volume was seen lower last week and this reinforces the cautious sentiment. Hence, with cautiousness, STI close at 3177.27 level with a mere 2.16pts up.

With ongoing talk and upcoming economic data to be reported, how will Straits Times Index react? Will it continue to stay cautious or start building up on bullish sentiment?

Let’s find out from the chart.

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

Support: 3170, 3100 (200 week MA), 3010 (20 week MA)

 Resistance: 3240, 3350

Observations:

Candlestick – Black hanging man pattern.

Histogram – Multiple Rs. No bearish crossover yet.

RSI – At 85%. Overbought.

Stochastic – At 77.8%. Out of overbought. Possible Bullish crossover again.

Bollinger Band – Closer to upper band. Band contracting.

Conclusion:

The price action of last week’s movement turns out to be an interesting candle. A black hanging man pattern was formed after a long white candle. This signifies a bearish reversal pattern which indicates that the market is facing bearish pressure while it attempted to go higher. However, this reversal pattern requires strong confirmation before it can trigger off a series of bearish movement. What is for sure currently based on the candle formation is that the market is indeed trading very cautiously. It is still hard to determine whether 3170 level is a resistance or support level currently. Therefore, further clues should be derived from the indicators.

 

The mid-term indicators did not change much in comparison to the previous week. Bullish readings are still seen while overbought is still happening. There is still no clear sign of bearishness from the mid-term indicators yet. Shorter-term indicators are still trending on the bearish side while the market is still able to close bullishly. This inverse correlation that happens for quite a while indicates that the market is possibly trending in a sideways momentum currently.

 

Hence, after last weeks’ movement, it is now clearer to identify that the market could be trending in a sideways ways momentum right now. So, identifying the sideways range that the market will be trending will aid our understanding of the market. Currently, it can be quite clear to see that STI is hovering at 3170 level. Sideways action can continue to hover at 3170 level for a while before it can attempt to head higher due to the underlying bullish momentum. If bullish pressure starts to kick into the market this week, it will then help STI to head towards its resistance at 3240 level.

 

However, due to the bearish reversal pattern that was formed last week, STI is still running a risk of retracement action. Hence, 3170 level will still be the key level to watch out for. If it is unable to sustain above 3170 level this week, it will mean that that the bearish confirmation will lead STI towards its next support level at around 3100. Going beyond 3100 support level is unlikely to happen currently. Therefore, the downside range should be limited.

 

In conclusion, the Straits Times Index is still sitting on the fence at 3170 level. Tipping either side will lead to clearer direction. As this week will be a short week for the market, it is more likely for the market to continue to trend in the cautious manner. Hence, I will not be surprise to see STI to continue hovering around 3170 level. Market news will be the key catalyst, currently, to help to tip STI off the fence. Be prepared for either way during this period.

 

What to watch out for this week:

1)      Testing of 3240 resistance level

2)      Breaking of 3170 support level

3)      Testing of 3100 support level

 

 Trading strategy to adapt right now:

-        Long traders should exercise a level of caution.

-        Shortists should also exercise a level of caution.

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