Straits Times Index facing retracement risk

Straits Times Index facing retracement risk
Straits Times Index facing retracement risk

Bullish streak for Strait Times Index had ended last week as the market rushed to exit the market. The week started flat as many are still finding clues to spur the market towards upside. However, bearish movements in US market had caused jitters to the Singapore market on Tuesday. Many rushed to exit the market as buyers were also fearful in entering the market. Talks of deeper correction were hyped up during the mid week which created further fear. Key support level at 3355 was broken on Thursday which sparked more bearish talks in the market. However, US rebounded strongly on Thursday night trigger a stream of buyers to rush into the market on Friday. This had helped STI to lose only 37.72pts for the week despite hitting the low of 3341 level. This volatile week ended at 3382.38 level.

Will Straits Times Index continue its rebound this week? Or is the rebound just a blink of excessive reaction to the underlying bearishness?

Let’s determine from the chart.

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

Support: 3355, 3270 (20 week MA), 3190, 3100 (50 & 200 week MA)

Resistance: 3450, 3530, 3630

Observations:

Candlestick – Black candle with long lower shadow.

Histogram – Turned R, bearish signal. Bearish divergence failed.

RSI – At 63.6%. Bearish divergence failed. Above 50% line.

Stochastic – At 80.7%. Overbought. Bearish crossover.

Bollinger Band – Testing upper band. Band expanding.

Conclusion:

The uptrend movement that STI is in is unable to reach its potential resistance level of 3450 last week. Bearish candle was formed for last week which can be deemed as bearish harami pattern. This has potential to create a short-term retracement before STI is able to attempt to test its resistance of 3450 level. 3355 support level was tested last week and was nearly breached. The strong rebound on last Friday proved that STI is holding its support level at 3355 strongly. However, the ability to hold at support level does not help to determine whether STI will be able to reverse the bearish candle formation. Hence, indicators should give more clues.

 

The mid-term indicators are still on the bullish side despite the bearish closing last week. No signs of bearish divergence yet as the previous reading failed to happen after recent market movements. The mid-term bullish momentum has yet to show overbought yet and hence, the underlying bullish momentum is still intact. The shorter-term indicators are crying out different readings. Both Histogram and Stochastic triggered bearish signals currently. These bearish signals indicate that there are possibilities of further downside movements as long as it continues to trade bearishly for this week. Therefore, STI is currently running the risk of moving lower in the shorter time frame.

 

With possibilities of shorter term bearish movements, it is important to prepare for this situation. Immediate support level at 3355 level is still at the risk of breaking despite a strong rebound last Friday. This support level will likely to continue to be tested this week and it will act as a key support level to watch for further bearish actions. If this support level is unable to hold, it will indicate that STI will be heading for a much lower support level. The upcoming support level will come from the 20 weeks MA line at 3290 level. Horizontal support stands at 3270 level. Therefore, breaking 3355 support level will lead STI towards 3270 – 3290 levels.

 

However, reaching 3270 – 3290 support levels does not mean that STI is reversing its underlying uptrend to downtrend. Uptrend movement will still be intact. Current bearish movements are still short-term retracement action which can help STI to for a higher low formation. Hence, this means that STI will still have potential to rebound and continue its uptrend movement. Immediate support at 3355 level can be a good level for STI to continue its uptrend movement. If STI holds at either 3355 or 3270 – 3290 support levels, it will mean that it is ready to continue its uptrend. Strong uptrend movement will start to occur once STI is able to test 3450 level.

 

In conclusion, the Straits Times Index is currently undergoing short-term retracement actions. Bearish movement is unlikely to persist beyond 3270 – 3290 support levels for now. Testing of 3355 support level is more likely to happen for this week. Such movements are common during a strong uptrend movement as the market requires a period of consolidation before it can head higher. Therefore, STI still has the potential to hit 3450 and beyond as long as it consolidates at its support levels. So for this week, do expect STI to consolidate at either 3355 support level or it head towards its next support at around 3270 – 3290 levels.

 

What to watch out for this week:

1)      Testing of 3355 support level.

2)      Breaking of 3355 support level.

3)      Testing of 3270 – 3290 support levels.

4)      Testing of 3450 resistance level.

 Trading strategy to adapt right now:

-        Long traders should for opportunities at support levels to buy.

-        Shortists should avoid having short trades as downside can be limited.

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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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