Sunday, April 17, 2016

What's Next For STI ?

A follow up to the previous post of "Has STI Bottom ?", it should be confirmed that Elliott Wave 3 already started after STI broke the 2906 level last week.


The Wave 2 retracement which was expected to hit between 2,680 to 2,770 didn't materialize as STI only pulled back to a level around the 2,800 level.  That doesn't mean it is invalid in Elliott Wave as the theoretical retracement level is just a guideline (which may or may not follow) rather than a rule.  The breaking above 2,906 last week also ascertained the completion of Wave 2 and STI is in Wave 3 of the uptrend and that is the rule.

Previously, in the "Has STI Bottom ?" post I also drew in the bullish pattern formation of "Inverted Head-and-Shoulder" and "Cup-with-Handle" with both breakout point around the 2,900 level.  From the look of STI performance last week, it does look like breakout but unfortunately, the criteria of high volume did not materialize.  However, in Elliott Wave, volume is not a must.

Next, look at the characteristic of Wave 3 of Elliott Wave (Wikipedia) :- 

"Wave three is usually the largest and most powerful wave in a trend (although some research suggests that in commodity markets, wave five is the largest). The news is now positive and fundamental analysts start to raise earnings estimates. Prices rise quickly, corrections are short-lived and shallow. Anyone looking to "get in on a pullback" will likely miss the boat. As wave three starts, the news is probably still bearish, and most market players remain negative; but by wave three's midpoint, "the crowd" will often join the new bullish trend. Wave three often extends wave one by a ratio of 1.618:1."

As it stated, the news at the start of Wave 3 still probably bearish and most still remain negative.  This fit nicely presently given the flow of global economic news still largely on the negative side and corporate earnings not much brighter either.  What's to look out for will be the point on corrections are short-lived and shallow and people looking to buy on pull back will likely miss the boat.  That fit in the description of so-called Fear Of Missing Out (FOMO).  This should be the sign one need to watch closely now if intends to get into the market.

Is this the new bull market ?  Well, from my definition, we are not in bull market (could be later quantified to be should all the news and data pointed to one) but rather an uptrend in "The Lost Decade" (a scenario that I quantified).  This uptrend should not be ignored as the gain one can get from it is not a small return.  Wave 1 started at STI 2,540 and ended at 2,906 giving a return of 366 points or 14.41% and Wave 3 started at 2,800 and if it follows the guideline of 1.618 times that of Wave 1, that should see it possible ends at 3,.392 and that represents a gain of 21.14%.  That is a gain of 33.54% from the start of Wave 1.  We have yet to talk about Wave 5 and that could further extend the gain.  It may be just an uptrend but is definitely something cannot be ignored and took opportunity for it.

Some might have sold out during February - March rebound ie Wave 1, now is a decision to make, forgo the possible upside in Wave 3 to Wave 5 (which could easily at least 30% gain) or getting back into the market by buying at a higher price than was sold earlier. 

This will be the last post in tracking STI direction unless the uptrend is violated.

 

3 comments:

  1. With today's drop in STI, is wave 3 still valid?

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    Replies
    1. 2800 broken, wave 3 invalidated. please refer to the latest post, which i'm going to post next for the possible direction next.

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    2. thx v much. have enjoyed your post and keep up the good work.

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