Straits Times Index attempting a breakout

Straits Times Index attempting a breakout
Straits Times Index attempting a breakout

Straits Times Index continued to its bullish streak while US Federal Reserve announced its first interest rate hike for this year. The week was first greeted with cautiousness as many chose to stay sidelines ahead of the announcement of the interest rate hike last Wednesday. Some traders anticipate the possibility of bearishness ahead of the announcement and hence, exited the market. This caused STI to trade lower on Wednesday before heading higher after the announcement of the interest rate hike. Falling oil prices have also put pressure on the offshore marine counters last week which capped STI upside. However, bullishness entered the market again as many cheered upon the announcement of the interest rate hike in US. This allowed STI to reach its resistance level at 3160 level. Eventually, this resistance level was broken slightly last Friday as STI is able to close at 3169.38 level; Ending the week with 36.03pts higher.

Over the weekend, Ezra announced that it had filed for bankruptcy in US. This can affect the performance of the local banks for this week. Will STI be able to sustain its gains? Will the market make use of this situation to take profit off the market?

Let’s look at STI’s chart for the answer.

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

Support: 3100, (200 week MA), 3010, 2960 (20, 100 week MA)

 Resistance: 3160, 3240, 3350

Observations:

Candlestick – White candle.

Histogram – 4 Rs. No bearish crossover yet.

RSI – At 73.3%. Overbought. Starting to dip.

Stochastic – At 81.1%. Back to overbought. Possible bullish crossover.

Bollinger Band – Closer to upper band. Band expanding.

Conclusion:

Straits Times Index managed to break 3160 level slightly last week. This can be a good indication of further upside movement for STI in the coming weeks. However, there is a need to confirm that the resistance level is truly broken as such minor breakout can turn out to be a false breakout. Looking at the trading volume, it can be pretty promising that the breakout is sustainable. However, it is also important to have further confirmation from the indicator readings before concluding that the breakout is firm.

 

The mid-term indicators are indicating bullish momentum and it is set to continue its momentum. Similar to previous week, overbought indication is still persisting and this will likely to slow down STI’s upside movement. Shorter-term indicators, however, are on the bearish side despite last week’s bullish closing. There is indication that the Stochastic is reverting back to the bullish momentum but further confirmation is needed. Hence, based on the indication, it seems that the momentum is skewing more towards the bullish side but overbought signal is likely to cap STI’s bullish momentum.

 

If the bullish momentum continues to persist this week, it will mean that the breakout of 3160 resistance level is successful. Successful breakout will lead to further upside movement and hence, possibilities of reaching its next resistance level. The next resistance level stands at 3240 level. This resistance level is quite a distance away from current level and hence, it will yield a good potential of bullish gains. However, for such bullish movement to be sustainable, there must be a strong catalyst for STI. Currently, there is lacking of positive news that can stimulate such bullish movements. Base on my speculation, the only catalyst can only be the rebounding of oil price.

 

Furthermore, STI is currently trading in the overbought condition. It will be a lot harder for STI to achieve its rally towards 3240 resistance level. There are 2 other possibilities of movement for STI this week. First, it might be consolidative actions at 3160 level. STI can consolidate at 3160 level before attempting to trade higher. Secondly, STI might not be able to hold above 3160 level. Lacking of catalyst to push prices higher can also induction profit taking pressure in the market. Hence, if 3160 resistance turn support level fails to hold, STI can revert back to its support at 3100 level.

 

In conclusion, the Straits Times Index can trade either way this week. Ezra’s news can impact on both the offshore marines and banking sector early this week. But it will depend on how the market will perceive this piece of news. If many think that the banks have provisioned well for this incident, then prices of the banks will hold. Otherwise, the market can perceive this news as a reason to exit the market. Hence, if the market takes the bullish route, STI can attempt to reach its next resistance level at 3240. But it can also take the bearish route towards its support at 3100 level.

 

What to watch out for this week:

1)      Testing of 3160 support level

2)      Breaking of 3160 support level

3)      Testing of 3010 support level

4)      Testing of 3240 resistance level

 

 Trading strategy to adapt right now:

-        Long traders may like to stay sidelines.

-        Shortists whom can take risk can start watching out for retracement actions.

 

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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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