Target resistance level of 3355 is being tested.

Target resistance level of 3355 is being tested.
Target resistance level of 3355 is being tested.

The Straits Times Index continued their bullish movement last week as market participants are positive on the improving economic environment. Banks results were being reported last week and this lead to bullish strength in the banking sector. With the banks trading higher, the index managed to get a boost from them. Gains were seen during the first 4 days of the week which lead STI to test its resistance at 3355 level. This resistance level held well and caused STI to enter profit taking actions on Friday. Therefore, STI did not end at 3355 resistance level for the week. Instead, it closed at 3330.75 level with 16.63pts up for the week.

With the target resistance level being tested, will further profit taking actions happen this week?

Let’s identify the movements from the chart.

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

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

Resistance: 3355, 3450, 3530

Observations:

Candlestick – Short white candle with longer upper shadow.

Histogram – 3Gs. Bearish divergence still intact.

RSI – At 76.7%. Just entered overbought.

Stochastic – At 90.8%. Just entered overbought.

Bollinger Band – Out of upper band. Band expanding.

Conclusion:

STI had definitely continued its bullish momentum after last week’s movement. Resistance level of 3055 level is being tested as what is being expected. Hence, the next step is to determine if the resistance level will be holding firmly. Based on the candle, it is clear that STI is facing resistance as selling pressure creates longer upper shadow. However, the candle body is still displaying white candle. This means that the bullish underlying is still firm. To be clearer, it will be good to look into the indicators for more affirmation.

 

The mid-term indicators are definitely bullish currently and are not showing any signs of weakness yet. Bearish divergence signal seems to be weakening in the RSI which can lead to further positive sentiment in the market. Now it is just lacking of the Histogram to invalidate the bearish divergence. RSI entered the overbought zone which can limit the upside momentum. Shorter-term indicators are positioned on the bullish side, which further confirms the bullishness. Stochastic is now trending in the overbought zone which indicates a possible upside limitation.

 

Indicators are definitely still on the bullish side despite profit taking actions seen last Friday. There might still be bullish force to push STI towards its resistance at 3355 level. However, STI might face trouble breaking this resistance level as the current momentum is deemed to be overbought. Therefore, upside will likely to be capped by 3355 level. With resistance level holding, STI will likely to experience selling pressure to allow STI to form a higher high formation. This also means that STI will be returning to test its resistance turn support level. 3270 support level will likely to be a strong support level as it is a tough resistance level to break for the past few months.

 

As going beyond 3270 support level is unlikely for now, it will be more likely for STI to go beyond 3355 level after this retracement. The next resistance level that STI will attempt to reach is at 3450 level. This resistance level can only be tested after breaking 3355 level. If STI is able to break 3355 level, it will mean that the bearish divergence signals will be invalidated. This will further lead to stronger bullish movements in STI.

 

In conclusion, the Straits Times Index has managed to test its target resistance at 3355 level. Profit taking pressure should be expected to happen this week but it will unlikely to lead to strong selling movements. 3270 support level will prevent further downside movement as it is deemed to be a strong support level. If this strong support level is able to hold, STI will then have a strong possibility to reach its next resistance level of 3450 level. Therefore, retracement actions can be expected but it can be a good opportunity to accumulate for the upside.

 

What to watch out for this week:

1)      Holding above 3270 support level.

2)      Testing of 3355 resistance level.

3)      Breaking of 3270 support level.

 

 Trading strategy to adapt right now:

-        Long traders can start looking for long opportunities.

-        Shortists should avoid the market.

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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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