Strong start for Straits Times Index in year 2018

Strong start for Straits Times Index in year 2018
Strong start for Straits Times Index in year 2018

Last week is a brand new start for Straits Times Index as the market starts trading for year 2018. The short week started with a bang as STI propelled strongly towards 3450 resistance level. Traders and investors were buoyant by the positive mood as the usual Capricorn effect starts to affect the month of January. Reports were citing strong economic numbers were seen in both US and China as the reasons for the strength in the market. Through all these strong reasoning, STI was able to break its resistance of 3450 with the high of 3469 level easily on Wednesday and Thursday respectively. Some profit taking actions were seen on Friday which brings STI to close at 3489.45 level. This brings a total of 86.53pts up for the week.

With STI breaking out for a new high, will it be a good time to rush into the market?

Let’s get some directions from the charts.

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

Support: 3450, 3355 (20 week MA), 3270 (50 week MA)

Resistance: 3530, 3630, 3700

Observations:

Candlestick – Long white candle with little upper shadow.

Histogram – 1 G. No bearish divergence. MacD bearish crossover failed.

RSI – At 78%. No Bearish divergence. Overbought.

Stochastic – At 44.6%. Bullish crossover.

Bollinger Band – Testing upper band. Band expanding.

Conclusion:

A strong bullish candle breaking resistance level of 3450 is a mark of continuation of the uptrend movement of STI. This price action also confirmed the higher low being formed at around 3370 level. Higher low formed at 3370 level defies the expectation of higher low forming at 3355 support level. Defying the expectation indicates that the underlying bullish strength could be a strong one. Bullish buyers are confident of further upside room and hence did not allow the market to reach its support level before heading higher. With this bullish sentiment, it can be confirmed by the indicators.

 

The mid-term indicators continued to trend on the bullish side last week. MacD reversed away its possible bearish crossover and this shows that the market refuses to trade lower. RSI continued to head higher in the overbought region which can limit STI’s upside. Shorter-term indicators were turning to the bullish side after a series of bearishness. Both Histogram and Stochastic triggered bullish indications which will likely to sustain the bullish strength. Therefore, STI will likely to continue its bullishness this week.

 

With bullish indication, it is still possible for STI to continue to trade higher despite a bearish closing last Friday. New string of buyers will likely to enter the market early this week. This bullishness will bring STI to its resistance level of 3530. With bullish momentum being firm and intact, possibilities of breaking this resistance level is high. Beyond 3530 resistance level will be the next resistance level at 3630 level. Testing this resistance level this week is unlikely for now as it will require more than 100pts of gains which is rare. Therefore, it is highly expected to see STI reaching 3530 resistance level at least.

 

Overbought reading in RSI will still be a thorn for the current bullishness in STI. Upside will be capped at some point in time but it pays to be ready for any downside movements. 3530 resistance level might hold firmly despite the possibility of breaking. When 3530 resistance holds, profit taking pressure will likely to set in to push STI down. Immediate support level will come from the breakout level of 3450. This support level will be a good level of consolidation before STI can move higher towards 3630 level.

 

In conclusion, it is certain that the bullish momentum will likely to continue this week. Bullish signals were seen in the indicators and hence, it will be the driving factor to push STI to test its resistance level of 3530 level this week. Going beyond 3530 to reach 3630 level can happen this week but if the overbought effect is in strength, STI might choose to consolidate a little before heading higher. Consolidation can happen at the resistance turn support level of 3450.

 

What to watch out for this week:

1)      Testing of 3530 resistance level.

2)      Breaking of 3530 resistance level.

3)      Testing of 3450 support level.

 Trading strategy to adapt right now:

-        Long traders can hold on to their long positions.

-        Shortists should wait for resistance level to be tested.

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