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Saturday, January 28, 2012

Weekly Technical Update - The STI

The Straits Times Index ( 2,916.26 )

The STI closed above the key resistance at 2,910 by 6 points. Should we consider this a successful violation of the key resistance? My take is not (yet) ! Real life application of Technical Analysis differs from academic model. Support and resistance isn't going to be textbook fashion all the time. When we said a key resistance is 2,910, the resistance is likely to fall within a band of +/- 5 points to 10 points. The rationale is that market participants aren't going to enter or exit their positions at the exact same spot. Therefore, when we talk about successful violation. We should apply some filters to qualify the violation. Some common filters are the "1% ~ 3% rule" and the "2 day rule". In other word, unless the STI closed above 2,910 by at least 29 points ( 1% ) and/or for at least 2 days, it is not considered a successful violation yet.

Given the facts that the STI is still sitting on the key resistance as explained above, RSI has reached overbought, volume has declined the past three days while prices edged higher and DJIA felt by 74 points over the weekend... The odd favors a weakening start for the upcoming week. There is, however, a wild card :  All of the 21 points gain on Friday was rack-up on the last trading hour. Normally, late Friday rally would mean renewed buying interest on Monday morning.

To sum up, STI may have breached 2,910 by a tinny margin but the violation was not decisive enough to have considered a breakout. It may be worthwhile to stay at the sidelines to see if STI will overcome ( breakout ) or succumb ( triple-top reversal ) to 2,910 in a decisive fashion.