Straits Times Index in the midst of correction

Straits Times Index in the midst of correction
Straits Times Index in the midst of correction

Strong selling pressure seeped into the Straits Times Index as the stock markets of the whole world went into selling frenzy. The selling sentiment started in US market first which created a domino effect to other leading markets. Reports of corrections happening became real as profit takers scrambled to exit the market quickly after a long streak of bullish movements since last year. Rebound attempts that happened during the week became opportunities for sellers to exit the market. This bearish spiral caused STI to lose a total of 152.58pts for the week; ending at 3377.24 level.

US market managed to close positively last Friday. This made many wondered whether it signifies the end of the bearish pressure. Is it time to buy into the market?

Let’s analyse STI’s chart to give us a better perspective.

Trend: Possible sideways to downtrend, 20 wma still up, MacD above 0.

Support: 3350, 3270 (50 week MA), 3190

Resistance: 3450 (20 week MA), 3530, 3630

Observations:

Candlestick – Long black candle with longer lower shadow.

Histogram – Confirmed bearish signal. No bearish divergence. Bearish crossover formed.

RSI – At 49.6%. No Bearish divergence. Testing RSI support.

Stochastic – At 51.9%. Bearish crossover already formed.

Bollinger Band – Tested mid band. Band contracting.

Conclusion:

The bearish engulfing pattern of the previous week had been confirmed by the bearish candle last week. Gap down action was seen and this marks clearly that the uptrend momentum of STI has been compromised. The key now is to find out whether STI will be forming a downtrend or a sideways trend. Hence, it is important to identify the underlying momentum STI is currently at and at the same time, to look at the key levels that STI will be forming its support or resistance.

 

The mid-term indicators are now starting to lose its bullish momentum. MacD is still on the bullish side but it had triggered a bearish crossover. This can lead to reversal of the bullish momentum to be a bullish one. RSI is now around the RSI support level. If the bullish momentum attempts to hold, RSI will likely to be hovering around the 50% level. This might help to trigger possibilities of rebound this week. Shorter-term indicators have confirmed their bearish signals and are likely to continue to trend bearishly. Hence, this will put a downward pressure in STI for this week.

 

With RSI showing possibilities of rebound this week, we can start to look at this possibility. Immediate support that STI is facing right now is at 3350 level. This support level had shown its strength last week as the bearish candle formed longer lower shadow which indicates support. Therefore, this support level can be a good level for STI to setup a rebound for this week. However, this does not mean that the rebound will lead to a continuation in uptrend. This rebound will face limited upside as the bullish momentum is now compromised. Hence, resistance levels will likely to hold more firmly this time round. Immediate resistance stands at 3450 level which will be the first level for STI to overcome if it rebounds. A much stronger resistance level is formed at 3530 level which confluences with the gap down resistance. Therefore, STI’s max upside will be at 3530 level.

 

Although, there is rebound chance this week, it does not mean that it will happen. Rebound will not happen if STI is unable to hold its current support level. Once STI breaks 3350 support level, it will lead to further downside. Breaking 3350 support level also indicates a breakdown of higher low of the uptrend channel. Breaking higher low support level will confirm the formation of downtrend which can cause a stronger downside movement. Next support level that STI can test will be the 50 week MA line at around 3300 level. This will likely to help to limit STI’s downside for now.

 

In conclusion, the Straits Times Index might take the lead from US market to attempt to rebound this week. 3350 support level must hold before it is able to trigger a rebound. Failure to hold will confirm a downtrend movement which can lead STI to further downside pressure. If a rebound happens, its upside will be limited by resistance at 3450 or in the best case scenario, 3530 level. Going beyond 3530 resistance level is unlikely for now as the bearish momentum will likely to persist for a period of time.

 

What to watch out for this week:

  1. Breaking of 3350 support level.
  2. Testing of 3300 support level.
  3. Testing of 3450 resistance level.
  4. Testing of 3530 resistance level.

 Trading strategy to adapt right now:

  • Long traders should stay sidelines despite rebound opportunity.
  • Shortists can take short positions when rebound hits resistance level.

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