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A Head-And-Shoulders Formation For STI?
Trend Spotting | 06 July 2010
By: Xavier Lim
Articles (51) Profile

In Issue 385, this writer mentioned that the local bourse’s breakthrough of 2,810 was not a convincing rebound and could be a false signal. This is because there are 2 highly possible patterns emerging. From the chart, we can see that the STI could be forming a head-and-shoulders or a bullish pennant. Therefore, this writer suggests that readers should be patient to wait for confirmation before jumping into the market.

On the other hand, the Dow Jones Industrial Average (Dow) touched the support-turned-resistance cum psychological level of 10,500 and quickly reversed back down again. As such, this writer has drawn a new trend line (in white). The chart suggests that the Dow has formed a head-and-shoulders pattern and looks to trend further down to touch the Fibonacci ratio of 38.2%. A fall below the Fibonacci ratio of 38.2% will extend the decline to around at 8,500 (an estimated extension of decline from the head-and-shoulders pattern). It is wise that readers should also keep an eye on the S&P 500′s ability to hold above the 1,000 mark, just 23 points below 2 Jul-10 closing level.

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1-year period daily chart for STI
1-year period daily chart for STI

Tonight (6 Jul-10), the Institute for Supply Management will be releasing the Jun-10 report on the service sector. On 8 Jul-10, the Labour Department will release the latest jobless claims data, and the Federal Reserve is expected to report that consumer credit has dropped about $2 billion in May-10 after rising by $1 billion in Apr-10.

This writer still thinks the old saying ‘if the United States sneezes, the rest of the world catches a cold’ remains relevant.

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1-year period daily chart for Dow
1-year period daily chart for Dow

Armed with an arsenal of investment knowledge, Xavier is the Senior Research Editor at Shares Investment.

Please click here for more information about this author.

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