FTSE STI closed 3,092.68 on 24th Sep 2010 after hitting an intra-day high of 3,116.24 on 22nd Sep 2010; slightly less than 4 points shy off the intended target of 3,120. Despite the index value ending positively for the month of September so far, sign of a pull back starts emerging.
Technically, as STI achieving a higher high from August, RSI and Stochastic did not follow a similar trend, instead both were capped at resistance level. This trend has formed a negative divergence of STI with RSI and Stochastic and this is termed as a bearish signal. The pull back if occurs could potentially see a drop to 2,930 level which is roughly 6% drop from the recent high of 3,116.
The Stochastic indicator also developed sign of cutting down indicating short-term downtrend is forming. In the GMMA, the long-term GMMA lines still expand in uptrend mode indicating long-term the strength in uptrend. Though, the short-term GMMA has yet to be compressed, this is something that need to be lookout for. From the ADX, the DI pair still positively spaced but sign of DI+ cutting down and DI- curving up is surfacing. A crossover of the DI pair will eventually indicate the downtrend.
Investors are advised to be cautious at the moment with negative signs starting to surface.
Short-term investors should adopt defensive strategy like switching to defensive stocks, maintain tight cut-loss to reduce risk, switching to intra-day play or maintain sideline as a cautious.
Long-term investors could take the opportunity of the pull back to start to accumulate as if the long-term GMMA lines do no get invalidated, the upside target remain at the 3,460 ( the official bull level ).
