Brandon Leu
+65 236 1918
[email protected]
25 June 2016
Straits Times Index (STI):
Stuck in a Bearish Trend
Straits Times Index (STI)
SHORT TERM
(Daily Chart)
Last Close: 2,735.39
Comments:
Short term (Daily Chart), STI is testing its immediate
support at 2,713, created in early May 16. However, we are
unlikely to see much significant rally from this point as STI
continues its bearish downward trend with the classical
lower high lower low pattern. This suggests that sellers
continues to dominate in the short term. The latest trading
session, a long black candle with heavy volume, forced STI
to cross below my personal 8DHL Band (Red/Blue dotted
line) that tracks the index's secondary trend, further
confirms the bearishness.
The short term (Daily Chart) Technical Indicators also
continues to be bearish. With MACD Histogram trading
below its centre line and below also the 9-Day signal line.
The Stochastics indicator is also bearish with trending
downwards, also trading below its 3-Day signal line.
MID TERM
(Weekly Chart)
With the multiple bearish signals on the short term (Daily
Chart), without any reversal pattern, there is a high
possibility that STI will break its current Support level and
trades towards Support 2 at 2,644 level.
Mid Term (Weekly chart), STI is also trading on a Bearish
Trend as we also observed the lower high lower low pattern.
Though, we are seeing 13-Week SMA trading above 34Week SMA, but as 34-Week SMA continues to downward
slope, any bullish is likely to be short lived.
The Mid term (Weekly chart) technical Indicators shows
that bullish momentum are week and bearishness are taking
over as we see MACD nearing its centre line with weak
upward momentum, which we are likely to see a bearish
crossover soon if current trading momentum continues.
Stochastics continues to be bearish with downward trend,
trading below its 3-Week sign line.
On the Mid Term, STI is likely to trade to 2,644 with the
current bearish momentum. needs to trade above its 2,964
high to break the Downward Trend.
LONG TERM
(Monthly Chart)
Forecast:
STI continues to display Downward Trend on both Mid term (Weekly
Chart) and Short Term (Daily chart). The STI is expected break its current
support 1, 2,713 and trade towards Support 2 at 2,644. On the long term,
STI remains on the upward trend.
Short Term Outlook: Downward Bias
Mid Term Outlook: Downward Bias
Long Term Outlook: Upward Bias
Technical Levels:
Resistance 2
: 2,964
Resistance 1
: 2,881
Support 1
Support 2
: 2,713
: 2,644
Technical Directions for Traders and Investors:
Short-term Traders: Short positions on STI ETFs or STI component stocks is preferred, with target cover zone near Support 2,
2,644 zone. A breakout above resistance 1, 2,881 will invalidate the above idea.
Mid-term Investors: Remain sideline and watch out for major bullish reversal chart pattern on the weekly chart or when index
breaks above Resistance 1 level to start investing into STI ETFs or STI component stocks.
Long-term Investors: Hold on to existing component stocks or STI ETFs and consider increasing STI ETFsor STI component
stocks when index drops below the lower band of the linear regression line.
1) Technical Analysis Tools:
Primary Trend of Timeframe
: Classic High and Low Movement (Weekly & Daily Charts)
: 13-Weeks Simple Moving Average & 34-Weeks Simple Moving Average Relationship
Secondary Trend
(Daily Chart - Trading Purpose)
: 8DHL Band (8-Days Moving Average-High & 8-Days Moving Average-Low)
Reversal Signal
: Candlesticks Pattern (Weekly & Daily Charts)
: Chart Pattern (Weekly & Daily Charts)
Momentum of Trend
(Weekly & Daily Charts)
: MACD
: Stochastics
: Volume
Long Term Trend
: Linear Regression (Monthly Chart)
2) Technical Analysis Methodology:
Time Frame:
I use both the Weekly Chart and Daily Chart to analysis and forecast the direction of a security or index. The weekly chart
determines the mid term trend and the Daily chart determines the short term trend of the security or index.
Trend (Primary Trend):
To the determine the Primary trend of the chart, I analyse the high and low of the weekly chart. I also uses the 13-Weeks Simple
Moving Average & 34-Weeks Simple Moving Average Relationship to confirm the trend.
Upward Trend:
Higher High and Higher Low (Weekly Chart) with 13-Weeks SMA trades above 34-Weeks SMA with 34-Weeks SMA upward
Sloping.
Downward Trend:
Lower High and Lower Low (Weekly Chart) with 34-Weeks SMA trades above 13-Weeks SMA with 34-Weeks SMA downward
Sloping.
Sideway Trend:
Higher High and Lower Low OR Lower High and Higher Low (Weekly Chart) with 13-Weeks SMA trades above 34-Weeks
SMA with 34-Weeks SMA downward Sloping OR 34-Weeks SMA trades above 13-Weeks SMA with 34-Weeks SMA Upward
Sloping.
Trend (Secondary Trend):
To the determine the Secondary trend of the chart, I analyse the high and low of the daily chart.
Upward Trend:
Higher High and Higher Low (Daily Chart)
Downward Trend:
Lower High and Lower Low (Daily Chart)
Sideway Trend:
Higher High and Lower Low OR Lower High and Higher Low (Daily Chart)
8DHL Band (Daily Chart):
It is a band I created to track the secondary trend on the daily chart, also gave it a easy-to-remember name calls "8DHL". I am
uncertain if other traders have created such indicator. The band is made up of 2 fast daily moving average, a 8-day moving
average based on the high price instead of the close price of the day and the other based on the 8-day moving average based on
the low price of the day.
A close above of the 8-Day High-MA signals a likelihood of the stock or index trades upward on the secondary trend of the daily
chart and a close below the 8-Day Low-MA signals a likelihood of the stock or index trades downward on the secondary trend of
the daily chart.
The 2 main purpose of the 8DHL Band is to 1) Identify High and Low on the daily chart and 2) Trading Entry and Exit Signals.
High: During a upward trend, the price reverse down and cross below the 8-Day Low-MA, a High is identified
Low: During a downward trend, the price reverse up and cross above the 8-Day High-MA, a Low is identified
Long Signal / Short Cover: During a downward trend, the price reverse up and cross above the 8-Day High-MA
Short Signal / Long Close: During a upward trend, the price reverse down and cross below the 8-Day High-MA
Candlestick Patterns:
Candlesticks pattern are used to identify possible trend reversal and the strength of a trend. It is applied on both the Weekly and
Daily Chart.
Chat Patterns:
Chart pattern are used to identify possible trend reversal and possible continuation of a trend. It is applied on both the Weekly and
Daily Chart.
MACD:
I apply the standard 12 EMA and 26 EMA with the 9 EMA as signal line. The MACD is used in my analysis mainly as a
momentum indicator, if a trend is strong or weak. I analysis the divergence signal and bullish/bearish signal line crossover to add
confirmation of a top and bottom.
The trend and centreline trend function of the MACD helps to further add confirmation to the trend analysis on both the Weekly
and Daily Charts.
Stochastics Oscillator:
I uses a 13-day look back period with 3 day slowing with a 3 day simple moving average. 13 day is used as it is a Fibonacci
sequence number, instead of the standard 14 days. The Stochastics Oscillator is used to measure the trend momentum of the
security on both the weekly and daily chart. Divergence analysis is applied to determine of trend continuation.
Volume:
Volume is to confirms a the strength of a trend and possible reversals.
Upward Trend with decreasing volume: weak upward trend
Upward Trend with Sudden Increase of Volume: Possible Climax and trend reversal
Downward Trend with Sudden Increase of Volume: Possible Climax and trend reversal
Linear Regression:
The linear regression is used to forecast the long term direction of the stock or index. It is only used on the monthly chart. It is
plotted from the first day till the current day of the monthly chart. A upper band and lower is then plotted on the upper range and
lower range of the price.
The linear regression helps to determine the long term direction of the stock or index. The upper and lower band provides an
indication to investors on buying and selling zone respectively.
Notes:
The periods used in the moving averages, 8DHL Band, MACD, Stochastics may be adjusted, depending on the stock or Index's
price behaviour. The above may also apply on other markets or instruments.