Straits Times Index – Daily timeframe

Current Sentiment: Bearish

Support 1: 3189                    Resistance 1: 3275

Support 2: 3112                    Resistance 2: 3354

Even after breaking above the 3275 critical resistance area since 14/07/17, the bullish momentum was short-lived. STI rose to a high of 78.6% Fibonacci retracement level and 3354 resistance area before turning down. The selloff since 04/08/17 has succeeded in leading the 20 day moving average and 60 day moving average to cross over to the downside suggests growing weakness.

Note the rally since the start of the year was firmly held up by the 20 and 60 day moving average on every pullback while the current correction has broken below the 20 and 60 day moving average and more importantly resulting in the crossover. This might be the start of a trend change.

The recent rebound off the 3226 crucial support area since 15/09/17 seems unconvincing too as the 20, 60 day moving average and downtrend line capped the rebound. Moreover, the bearish rejection resulted in price forming a Bearish Engulfing Bar on 19/09/17 suggests further downside next.

STI should head lower next to retest the 3226 crucial support area. More importantly, keep a close eye on the 3226 support area, as a break below it would exacerbate the selloff.

Keep in mind the weekly RSI is in the midst of a mean reversion off the 72 overbought peak in July suggesting a high likelihood of a deeper correction. Historically, since 1995, the overbought mean reversion signal has produced an average correction of -7.7%.