Unfortunately, a 10% correction translates into more than 400 points. Hence, don’t be surprised if the index falls by 400 points. At this level, the bull market will still be intact as the STI remains above its major moving averages. The 50-day moving average is some way away at 4,671.
Roundophobia is a term coined by a technical analyst popular in the 1980s, David Fuller. It means a fear of round numbers for the stock market. 5,000 is such a number. It just so happens that as the Straits Times Index approaches 5,000, technical indicators are somewhat overstretched. Short term 21-day RSI remains stubbornly above the overbought line which in itself is not an alarming signal.
However, directional movement indicators are overstretched, with both +DI and ADX at their highest levels in five years. In addition, weekly ADX and +DI are at their highest levels in 10 years, as is 13-week RSI. All these suggest that the STI is ready for a rest. This could take the form of a sideways consolidation with the index retreating around 10% from its high and trading within a sideways range of plus and minus 10%.
