Uncertain times: What lies ahead for the STI?

The news hoarding the headlines is the possible default of Greece, which has been in the background until 2 weeks ago. The new attention has brought the STI lower, with many suggesting the possible breach of the 3000 psychological support. As doomsayers will propagate- its all downhill from there.

The world economy is not at its brightest right now, with China and the US reporting a slow down in economic growth. Crude oil (assuming world demand is an indicator of world economy), which traded into the 110s a month ago, has dipped to a frail 93/ barrel.

For Singapore, the imported inflation takes a back seat, but the new concern is a slowdown in world trade, which will take its toll on the economy in time to come. Shipping counters like Cosco and Yangzijiang have reacted, dipping sharply over the last 2 weeks. The current sentiment is extremely grim, but this might also be the opportunity traders are looking for.

The first chart indicates that the long term support has been broken, which coincides with a symmetrical triangle formation. The projection takes the index all the way down to 2970, which was the support for the crash in Feb 2011. I suspect this level will hold as it did the last time, and as the trading activities play out, the EU will announce new plans to aid the Greek situation.

The course of action now is to step aside and watch for signs of support after 3000 is broken. The momentum indicators point towards an oversold condition, which is always a precursor for a rally. whether this rally is a short term bounce or a genuine one, the price action will tell the story in time to come. For now, the volume over the last few days show an increasing trend, suggesting a strong selldown. One of the clues that a turning point is ahead will be the drying out of trading volume. I will be keeping my eyes open for that.