STI held above 2744 on very narrow range for the past week. The charts show that there is no strong buying to support a strong rally, yet there is limited downside because of an oversold condition. The lower volume on the trading days below 2744 proves that the market is not inclined to dip further for the time being. Does that point to a rally then?
It does seem likely, and a short term buy trade could be profitable. As usual, i think the key is watching how the rally unfolds and to take quick profits on possible signs of weakness.
The long term buy signal will come in once the market edges closer to the moving averages.
The S&P500 closed the day up after Bernanke's speech on Friday, trading within the range established between 1100 and 1200. The last two attempts to break out were met with price rejections driving the index back down. The selling however was on much lighter volume. The clear long signal will arrive if the index can trade above 1200 on clearly higher volume.
However, the nature of the triangular pattern is often a continuation pattern, so it does point towards the possibility of an aggressive shakeout before a real rally occurs. That will be a comfortable area to load up and go heavy long.
For now, the market seems likely to trade within the triangle on light rallies until the next catalyst comes along.
The 2744 low has been breached, which points to the ominous continuation of the bearish move downwards. It occured quicker than i expected, but the high volume is genuine. The selling is extremely strong for a good reason- everyone expects the index to move lower.
I do not advocate buying yet, although the market is oversold. Staying on the short side is the way to go, until a basing pattern emerges and selling dries up. Gold should be making fresh new highs again, as the global equities trudge through this turbulent phase. 1900 should be in the cards.
Yes for short term traders, but no for investors. This is unlikely to be the true bottom yet, based on my observations during the 07 crash and the 09 bottom. While the points for the positive trading days look powerful (40-60 points) and are out of the usual STI range, it is important to bear in mind the 100+ points sell down earlier. The market is emotional and the trading ranges are amplified, so the perspective must be taken into consideration. The rebound so far has been on low volume, similiar to the S&P on the US side. Short term traders may be able to gain a quick buck buying into oversold conditions, but profits need to be taken quick. I will move on to the S&P chart to discuss my rationale behind the statement.
The market picture is much clearer on the US side, with the decrease in volume being much more significant. The day ended just slightly higher on a second day of closing just below resistance. Again, applying the same logic, if the market could reverse 50points in a day (400 for DJI), but was nowhere to be found upon approaching resistance, a reversal could be in the cards.
I substantiate my claim with 3 observations:
1) 1/3 of the previous 3 days range-hesistation
2) 2nd day of closing below resistance
3) Cluster of continuation candlestick pattern rather than reversal
Hence, for longer frame trades, it is more strategic to hold back for the time being, and wait for the market events to play out.
I was dead wrong and overly optimistic in my previous post. 2 days have passed and the market has sunk even deeper. As i write, Dow Jones is down 400 points, so i expect STI to gap down tomorrow. 2821 is the next support to watch, and a closing below that hints at yet another low to come. The market is increasingly volatile with emotions raging high, so traders who insist on trading during this period should trade smaller positions with much wider stops. A short term rebound will definitely come in this oversold condition, but this trade will not be an easy one.
On a side note, a lot of experts are recommending defensive stocks as a safe haven amidst the chaos. I do not agree, simply because Singapore's economy is unlikely to escape unscathed from the ring of fire spreading across the West. This is the time when cash is king. In SGD though. Dont hold the wrong one. ;)
As the saying goes, "The market exists to make as many fools out of man as possible". It is an uncomfortably apt description for last week's trading. In the previous post, i mentioned that the STI was about to move decisively, and the setup looked bullish. There was however, huge concerns over the state of the US economy and the ongoing Euro crisis. The bearish close below 1296 did point towards more downside as good old hindsight made it clear that the Head and Shoulders formation was completed. The 4 day slide alone has already exceeded the target price, so it does seem like the trading for the US market should be in the form of a relief rally and subsequently sideways movement.
Applying this analysis on the STI, it seems more likely that there will be a rebound rally before further dips. The STI is performing relatively stronger to the S&P, so the index may not reach its full price objective. The price target from conventional TA points all the way down to 2500, which i highly doubt will be reached. A more plausible target is around 2900+. With this in mind, the strategy for next week is to buy the rebound, as there should be some decent strength. Traders should however watch out for signs of exhaustion and be quick to take profits. Otherwise, the larger picture is still a short.
Based on tonight's movement from the US market, STI is likely to open with a gap down. This morning's sudden strength came as a surprise, which could very well turn out to be a false break. The market is definitely in a selling mode now, after US manufacturing figures fell to 50.9 from 55.3 the month prior. The contraction continues to weigh down on the worsening economic outlook. It will be very tough trying to go long during this period. Hence, i maintain my bearish bias.