STI closed 2,701.20, down around 11% from the recent peak of 3,037 in concern over the European debt could spread to rest of the world and affect the recovery process from the sub-prime crisis.
Technically, STI is on a downtrend as DI pair is negatively spaced with ADX signal rising towards 40, short-term GMMA lines expand and trend down, long-term GMMA lines getting compressed and both RSI and Stochastic indicators also entered oversold region. STI has also fallen below the 200d EMA line and now sitting at one of its support level at 2,700.
Short-term wise, with RSI, Stochastic both in oversold region and a potential morning star candlestick formation could be formed, there are signs of a rebound with immediate resistance at 2,820 level. The morning star formation is only valid if the next trading session STI managed to close with a white candlestick, either RSI or Stochastic starting to cut up or the 3d short-term GMMA line cutting up to the 5d short-term GMMA line.
STI could also face possible more downside with the next support level at 2,580.
Investors should start to monitor the GMMA indicators especially if both the short-term and long-term GMMA lines are being compressed at the same time. Presently, short-term GMMA lines are expand and trend down while the long-term GMMA lines are being compressed. The following scenarios are all possible :-
1. If the long-term GMMA lines expand and trend down, this would result in a very bearish sentiment and potentially 2,580 could be hit.
2. The long-term GMMA lines could stay compressed while awaiting for the short-term GMMA lines to be compressed and that mean during these periods, STI would be range bound around the 2,700 level.
3. For the scenario that both long and short-term GMMA lines are compressed at the same time, this will signal a big movement to STI next. The direction of the big movement could be projected based on how the short-term GMMA lines being expanded next.
a) short-term GMMA lines expand and trend down, the long-term GMMA lines will soon expand in downtrend manner and that will result in more downside to STI
b) short-term GMMA lines expand and trend up, the long-term GMMA lines should expand in uptrend manner too and the recent correction will be negated
Market disliked uncertainties and with lot of uncertainties happening around whether the EU bailout plan will be able to contain the debt issue, the market will remain choppy and volatile. There are several key levels which investors might want to take notice of.
a) 2,580 support level if 2,700 is unable to hold
b) 2,400 level would be a level to determine whether Singapore economy is able to avoid a double dip recession
c) 2,940 level is a level that will determine whether STI could negate the current downtrend
Short-term investors/traders should maintain cautious whereas long-term investors would be advisable to look at the fundamental of the companies before decision to commit any long position
