North Korea's Nuclear testing shakes the market.

North Korea's Nuclear testing shakes the market.
North Korea's Nuclear testing shakes the market.

Straits Times Index started the month of September bearishly. This bearish action was triggered by North Korea’s nuclear testing. Fear of war heighten as the tension rises; creating a wave of market participants exiting the market. On Monday, the market reacted immediately on the bearish side. STI was brought to as low as 3227 level before it attempted to rebound the next day. Rebound attempts during the week were unfruitful as it failed to sustain beyond 3245 level. Bearish pressure was undeniable firm but strong selling pressure was not present. Eventually, STI closed the week at 3228.56 level with 48.7pts down for the week.

North Korea’s nuclear testing had indeed stirred the market last week. Denouncements were reported throughout the world. War concerns are real but how will it affect the market?

Let’s analyse the chart.

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

Support: 3190, 3100 (50 & 200 week MA), 2960

Resistance: 3270 (20 week MA), 3355, 3450

Observations:

Candlestick – Black candle. Bullish harami confirmation failed.

Histogram – Multiple Rs. MacD heading downwards. Bearish divergence still intact.

RSI – At 48.2%. Bearish divergence still intact.

Stochastic – At 16.3%. Oversold.

Bollinger Band – At mid band. Band contracting.

Conclusion:

The support at 3245 level that held STI on the previous week failed to hold firmly last week. This indicates that the STI is unable to sustain the rebound towards 3355 level. This also indicates that integrity of the uptrend movement is being compromised. STI is now running the risk of reversing its uptrend movement. Furthermore, closing with a black candle also indicates that the bearish momentum is starting to take over. To confirm the bearish momentum, it will be better to confirm with the indicators.

 

The mid-term indicators have yet to switch to the bearish side despite bearish closing last week. RSI is now in the risk of trending in the bearish territory as it starts to trade below 50% line. Shorter-term indicators continued to indicate bearish momentum. Stochastic continues to trend in the oversold region but yet to form any bullish crossover. With this, bearishness momentum will likely to continue for this week.

 

Bearishness will bring STI to a much lower level. Immediate support level is now at 3190 level. This support level is formed by the recent higher low level of the uptrend. Testing this support level means that STI’s uptrend is no longer intact. But if it holds at this support level, STI might have a chance to form sideways formation. It is an important support level because breaking it will indicate a reversal to downtrend. Downtrend formation will lead STI towards its next support level of 3100. Therefore, it is important to watch for 3190 support level this week.

 

Although the odds of bearish movement are high now, the uptrend can still continue. As long as STI is able to recover above the 20 week MA line at 3245 level this week, the uptrend can continue. For affirmation of uptrend movement, STI must then go beyond 3270 level in order to confirm the support at 3245 level. When all these movements are able to happen, STI will then be able to revert back to its bullish movement towards the resistance at 3355 level.

 

In conclusion, the Straits Times Index will likely to face further bearish pressure this week as it failed to hold above 3245 level. STI must be able to recover above 3245 level in order to revive its bullish momentum. However, if it is unable to do so, bearishness will set in. The bearishness will bring STI towards 3190 support level. But if this support at 3190 level fails to hold, STI will confirm its downtrend formation which can bring it to a much lower level at 3100 level. Therefore, STI is now standing in a crucial week as it will determine whether the uptrend formation will be intact.

 

What to watch out for this week:

1)      Testing of 3190 support level.

2)      Returning above 3245 support level.

3)      Testing of 3100 support level.

4)      Testing of 3270 resistance level.

 

 Trading strategy to adapt right now:

-        Long traders should just cautious.

-        Shortists can consider on the short side if the support fails to hold.

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*Disclaimer:

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.

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