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The market's breakout looks good

Goola Warden
Goola Warden • 2 min read
The market's breakout looks good
SINGAPORE (June 5): On June 2, the Straits Times Index surged by 89 points, along with significant volume expansion. This took the index above its 50-day moving average - now at 2,551- and a resistance area at 2,620 - 2,650. The breakout indicates a targe
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SINGAPORE (June 5): On June 2, the Straits Times Index surged by 89 points, along with significant volume expansion. This took the index above its 50-day moving average — now at 2,551— and a resistance area at 2,620–2,650. The breakout indicates a target of 2,889 initially, and 3,000 eventually.

The breakout looks good because the STI moved above its 50-day moving average which had been acting as a resistance line, and a resistance area simultaneously, accompanied by volume and a follow-on.

In the short term, 21-day RSI — which has broken above its own resistance at its equilibrium line — is at 58, which is not overbought. For a 21-day RSI, the overbought level appears at around 78-82.

Short term stochastics has only just turned up, from the low end of its range. For the current move, stochastics has lagged a little.

ADX had already turned up, and the DIs are positively placed. This indicator identifies trends, and for this month, the trend is likely to be upwards.

Quarterly momentum had remained resilient throughout the final week of April, when weakness had set in. It has strengthened and its likely to continue its upclimb.

In view of this, the STI is likely to spend this month going from strength to strength. Part of the reason could be the realignment in the index itself, ahead of a change in components later this month.

In addition, the banks have strengthened. This could be due to shareholders approving their generous final dividend for FY2019, or it could be the outlook for this year and next articulated by their management. Technically, there is buying demand as prices rose on net buying.

Despite market strength, traders should be aware of levels below which they may want to exit or stay on the sidelines. The STI closed on 2,751 on June 5, hence 2,700 should be the new support as this level was where the index jumped out of its resistance, and it is a roundophilic level — that is the affiliation of markets to halt retreats at round numbers.

STI with quarterly momentum

STI with short term indicators

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