- The STI has unfolded as per our predictions on 3 April. We had forecasted a mild pullback and a resumption of the rebound thereafter. Indeed, the index pulled back in early April and then rebounded to a high of 3,235.24 last week.
- A short-term uptrend line has been established at this stage of the rebound. The index is currently trading above this trend line, but we do not think this level will hold.
- We anticipate a pullback and this is reinforced by the stochastic indicator which is currently displaying a negative divergence. A pullback would take the index down to the 3,100 support level.
- Having broken above the 50 and 100-day moving averages, the index seems poised to take on our forecasted resistance at 3,300. However, it is unlikely to do so before a pullback unfolds in the near-term.
- We view 3,300 as a critical level as the 200-day moving average is also in proximity to this level. Hence we view the resistance as strong. The index could stage a substantial reversal as compared to the pullbacks we have witnessed since the commencement of the rebound in mid March.
- Hence we advise traders not to get swept up by false optimism at this juncture. We have yet to observe convincing signs of a market recovery to support a full scale resumption of the bull market rally. We feel the upside is limited at this stage.
- Should the index crack the 3,000 level, subsequent support is set at 2,745, which was the low formed in March.
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