Market Outlook (22/05/10): STI on verge to enter bear market!

In last week, STI lost a stunning 154 points from the opening of 2855 and close lower at 2701 to mark a  long bearish candlestick with little shadows which shown that intensity of the selling pressure. Although this week volume has slightly decreases compared to past 2 weeks but it is generally higher than average trading volume.

Fears on the Europe’s debt crisis have heightened over past weeks with most investors likely to further monitor the works of the euro leaders stabilize its heavily indebted members.

China will also be another focus point as the government may tightens bank lending and takes other actions to slow down the economy growth.

Technical Analysis on STI

The situation for STI is clearly very bearish since we close 154 points down to mark the largest drop for the week since Oct 2008

Important points to note

1)     Long black candle sticks with little shadow have shown the determination of the bear trying to short the market.

2)     The trading volume for this week has decreases slightly but still higher than average weekly volume. (Selling pressure still strong)

3)      RSI heading downwards though the prices went up revealed the weakness in the rally momentum.

4)     Currently STI is supported at the 50 weeks MA and the important technical support at 2665 which it has tested in last Friday.  

5)     High possibility that STI will re-test the 2665 support in next week to determine the next direction of the market.

6)     Why is the support at 2665 important?

a)     Rally stage: From Mar 2009 to Sep 2009 (7 months period)

b)     Consolidation period: From Sep 2009 till now (9 months period)

Since Sep 2009, STI has managed to achieve higher high with 2665 index as the critical support forming an ascending triangle. Once the support has been broken, STI technically will enter bear market which means recession may come. (Possibility of double dip)

Important resistance of STI: 2730

Immediate Support of STI: 2665

MY tactics: Wait at sideline unless shorting. Do not encourage to catch a falling knife at this point of time.