Straits Times Index reacted bearishly

Straits Times Index reacted bearishly
Straits Times Index reacted bearishly

It had been a pretty exciting week for Straits Times Index as market watchers are waiting for the expected interest rate hike in US. The expectations were fulfilled and new expectations were established. Many are looking forward towards further hike to happen in coming quarter. Usually, when expectations are met, the market will adopt the “sell on news” effect. This time round, our market reacted according to this effect. There were bullish anticipation during the early week but it was quick to be brought down by sellers whom think that the interest rate hike is being over-rated. After the hike announcement on Wednesday night, STI reacted bearishly the next day. The sellers had taken over the market which calls for further bearish pressure. Therefore, STI ended with 22.75pts down, ending at 3231.44 level.

Will bearish movements continue to dominate the market next week? How should we position ourselves currently?

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

Support: 3180 (20 week MA), 3100 (200 week MA), 2960 (50 & 100 week MA)

 Resistance: 3270, 3350, 3450

Observations:

Candlestick – Black candle. Possible dark cloud cover pattern.

Histogram – Many Rs. Bearish crossover.

RSI – At 64.1%. Out of overbought.

Stochastic – At 61.8%. Bullish crossover failed to form.

Bollinger Band –Closer to upper line. Band squeezing.

Conclusion:

Straits Times Index had tested its resistance at 3270 level last week. This resistance level stayed firm and caused STI to retrace. Bearish candle formation was seen which further confirms the strength of this resistance level. US interest rate hike did not spur a breakout of the resistance at 3270 level. Therefore, STI is now running the risk of bearish movements for coming week as it did not manage to break the resistance level. With this possibility, it is important to affirm the direction with the indicators.

 

The mid-term indicators are starting to lose its bullish momentum after last week’s movement. MacD line had triggered a bearish crossover which can lead to a reversal in the underlying momentum. RSI is now heading lower which indicates that the bullish strength is losing momentum. Shorter-term indicators are also skewing towards the bearish side. Stochastic failed to confirm its possible bullish crossover and it is now heading lower. Furthermore, Histogram remains in the bearish side. Therefore, from the indicators, the current momentum for STI is skewing towards the bearish side.

 

With bearish readings, STI is likely to be trading bearishly in this coming week. Immediate support level is currently at 3180 level. This support level will be the target for STI to head towards. Strong selling pressure is currently unlikely to happen as there is lacking of strong trading volume for the past weeks. Therefore, chances of panic selling are low. This also means that the market will likely to take a while to reach its support at 3180 level. 3180 is a strong support level which confluences with the 20 weekly MA line. Hence, it is unlikely to break this support level in this week.

 

There can also be certain surprises in the market if there is new catalyst to trigger market movements. On the bearish side, if STI fails to hold at 3180 support level, the selling pressure will then likely to force STI to reach its support at 3100 level. On the bullish side, 3270 resistance level will be tested again and if it broke out, the next resistance will be at 3350 level. Preparing for these surprises can help us better decide the actions plans to take.

 

In conclusion, the Straits Times Index will likely to face further bearish risk this week as the resistance level at 3270 level remains strong. Bearish pressure will likely to push STI towards its support at 3180 level. This support level will likely to hold firmly this week as it is a strong support level. There are also possibilities of market moving beyond the range between 3180 – 3270 levels. Further bearish movements will happen if STI fails to hold above 3180 level while bullish movements will happen only if STI is able to break 3270 resistance level. Therefore, STI will be trading in this tight range of 3180 – 3270 levels this week.

 

What to watch out for this week:

1)      Testing of 3270 resistance level.

2)      Breaking of 3270 resistance level.

3)      Testing of 3180 support level.

4)      Breaking of 3180 support level.

 Trading strategy to adapt right now:

-          Long traders should stay cautious while being ready to get out of the market.

-          Shortists should stay sidelines till firm bearish confirmation.

 

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