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SGX: To Resume Downtrend After Rebound?
Trend Spotting | 23 November 2012
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By: Robin Han
Articles (102) Profile

Let’s first look at the STI. Yesterday, the STI rebounded 26 points. This is the first strong bullish candle after Obama was re-elected. Many investors feel that it is a good sign and the STI may have finished the downtrend and would reverse soon. I personally think that this is likely to be a short-term rebound in a mid-term downtrend. The probability for the STI to turn uptrend is low at this moment, here are my reasons.

Looking at the weekly chart of the STI, we can see that both MACD histogram and moving average (using 7MA and 13MA) indicate that the STI is in a mid-term downtrend. Long-term wise, we are in an uptrend channel. However, the STI has just tested the higher band of the channel and thus may move down to retest the lower band of the channel.

Looking at the daily chart of the STI, we can also see that the MACD and MAs are indicating a clear downtrend. I have, over the past month, mentioned a few times that many technical signals are pointing to a likelihood of the STI turning to a downtrend in the mid-term. These signals are mid-term and may affect the STI over a few weeks.

The resistance and gap down at around 3,000 will serve as a significant resistance. In addition, the MAs and trendline will be another form of resistance. Therefore, the rally yesterday is likely to be a short-term rebound and the STI may not turn to uptrend very soon.

Weekly Chart of the STI

Daily Chart of the STI

SGX has been in a downtrend recently. From the weekly chart, we can see that it is in a long-term horizontal channel. Having tested the upside of the channel recently, it may move down to test the lower band. From the daily chart, we can see a very stable downtrend.

Shorting on rebound can be profitable for such a trend. Yesterday, when the market was strong, it also rebounded. However, the volume was quite low and there appeared to have a very significant resistance level at around $6.70.

Personally, I will short the counter if it is able to rebound to 50 percent Fibonacci retracement level and place a stop-loss right above the consolidation zone at around $6.70.

Weekly Chart of SGX

Daily Chart of SGX

Robin Han is a Ph.D in Department of Chemical and Biomolecular Engineering and has got a solid foundation in the financial markets.

Please click here for more information about this author.

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