SINGAPORE (March 6): At times of sharp declines, important lows provide support.
The STI has moved below the Oct 2018 low of 2,972 and is testing the intra-day Oct 2018 low of 2,961.
Weekly chart with annual and two-year momentum
The next important low for the STI is at the 2,623 area which was tested in May 2016.
There is no change in the stance of long-term indicators such as smoothed annual momentum and smoothed two-year momentum.
They both continue to decline in tandem. The two-year momentum has been falling since the first quarter of 2018, and annual momentum turned down in January this year.
Quarterly momentum is in sharp retreat and has yet to reach significantly oversold levels where it could find support.
Daily chart with short term indicators
Short-term stochastics is at the low end of its range but it maybe another three to four sessions before stochastics can bottom and rebound.
The 21-day RSI is at the low end of its range and is in the early stages of a minor positive divergence with the index.
ADX continues to rise. It is at 31 and would be oversold only when it moves towards the 47 to 50 range. The DIs remain negatively placed.
Once again, the STI is likely to stage a bounce in reaction to the increasingly oversold levels of short-term stochastics. However, a sustained rally may not develop within the week.
Still, traders should watch for signs for selling pressure to alleviate as that could provide for a temporary rebound.
On Friday, March 6, the STI opened at its high and closed at its low, forming a long black candle with a shaven bottom.
A sign for a developing bounce could be a long shadow below the body in the candlestick chart, or a doji could develop.
In addition, volume needs to contract, and daily ranges need to narrow. These are signs that the STI’s selling pressures alleviates.
Originally, the Dow Theory, the grandfather of technical analysis was used to predict business and economic cycles. If the charts maintain their downward thrusts, in particular, in places where the indices have had a long uptrend such as the Dow Jones Industrials Average, the signs are ominous for business and economic conditions.
Another point for the Dow is its wide ranges, increased volatility, and increased market participation in recent sessions. Markets are usually volatile during top formations. Bottom formations are usually defined by slow, sleepy movements within narrow ranges, with shrinking volume.
