SINGAPORE (Aug 30): The rebound by the Straits Times Index appears tentative but is likely to continue as quarterly momentum continues to recover.

Chart 1: STI with moving averages and momentum

In addition, volume is starting to expand on white candle days, and to contract on black candle days, an indication that demand for stocks is creeping back. Support has been established at 3,081, which was the closing low on Aug 29. During the session, the index fell to an intra-day low of 3,040, but rebounded, forming a bullish engulfing pattern, which could turn out to be a minor temporary low.

Chart 2: Short term indicators start turning up

Short term stochastics has turned up, and 21-day RSI has rebounded from a an 18 month low of 27, ADX is at the top end of its range, and -DI appears to have peaked and is poised for a downturn. These indicators suggest that the rebound by the STI should persist. Resistance appears initially at 3,212.

Chart 3: SingTel’s short term indicators set for recovery

Short term stochastics has turned up and 21-day RSI has recovered following a minor positive divergence. This suggests that prices should rebound – albeit temporarily for the time being – in line with the STI. In this event, resistance appears at $3.26 which represents the top of a sideways range. Since quarterly momentum is in a downtrend, and prices also appear to be forming a downtrend, the rebound could be part of a continuation pattern in a downtrend. Support/ breakdown in at $3.12.