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Sunday, January 23, 2011

Two Views Of STI

The recent market is posing a lot of challenges to technical traders. A textbook fashion Head & Shoulder pattern has ended up as being false. A support / resistance ( line B ) that does not look like it will violate has violated both ways.

I have therefore decided to look at the index using not only candlestick chart but also Point and Figure Chart :

STI Candlestick Chart :

Support at line B was penetrated decisively on Thursday with follow through selling on Friday. The index has lost 65 points in 3 straight sessions. Stochastic is near over sold. We may see a rebound to bring the index back to touch line B ( 3,220 ), which is now the resistance. Failure to overcome line B will see line C ( 3,120 ) as the next support and price objective.

STI Point and Figure Chart :

The candlestick chart does not give a clear view of whether STI is currently bullish or bearish ( but rather it has been whipsaw up and down with lots of sideways actions ).

The Point and Figure Chart, on the contrary, is unambiguous ! STI is currently trading below the Bearish Resistance Line ( Red Line ) and thus it is bearish bias.

While traders may benefit from every rebound after a prior sell down where the index has become oversold. It is important to watch two levels : 3.115 and 3,105. At 3,115, the Point and Figure chart will generate its first weak sell signal. At 3,105, a strong sell signal will be triggered.

So for short term swing traders, it is okay to profit from each nimble trade on the basis of buy on dip when the index has become oversold. But should you see 3,105 being taken, it is a warning that more downside is to be expected. Unfortunately, it is not possible to establish a downside target at this time. Not until the current column of "O" has been fixed by a new column of "X".