STI closed 2,939.97 on 13th Aug 2010, closing positive after 6 days of down since hitting the intra-day high of 3,043.28 on 3rd Aug 2010. Technically, STI has broken out of an inverse head & shoulder formation around the neckline of 2,890 on 7th Jul 2010. The projected target for the inverse head & shoulder formation is around the 3,120 - 3,130 region. The pulling back after hitting 3,043.28 has not invalidated the breaking out of the inverse head & shoulder formation yet.
Technically, short-term wise, STI appeared to be trying to re-test the neckline at 2,890. A successful re-test and re-bounced from there should resume the uptrend to 3,120 - 3,130. However, the neckline at 2,890 if failing to hold will indicate more downside with a target of 2,740. Long-term wise as seen from the long-term GMMA lines, they are on an uptrend and that could provide some cushion on the downside at the moment.
STI has corrected more than 10% in May due to the concern of the European debt could derail the global economy recovery and the recent pull back could put the market into 2 possible scenarios.
1. Market is a forwards indicator, the pull back in May was to project 6 months ahead the impact of the European debts that could hinder the global economy recovery. The recent pull back was mainly due to the hard data that show economy slowing down is digested by investors. Hence, such a pull back should be limited and after the pulling down, the uptrend will resume.
2. Market is a forwards indicator, the current pull back could be a reflection of something might happen 6 months later about the global economy situation.
Recent economic data showed that global economic growth will be slowed down in 2H10 but yet to show any signal of a possible double-dip recession. Therefore, the scenario 1 is more likely to take place than scenario 2. As a pre-cautious, if STI was to be broken down at 2,890 ( invalidated the inverse head & shoulder formation ), hitting 2,740 could signal scenario 2 might be happening.
Investors that are biased towards scenario 1 to be happening could take the current pull back as opportunity to accumulate.
Investors that are biased towards scenario 2 in the making should exercise cautious, staying sideline at the moment.
