SINGAPORE (April 24): The Straits Times Index has sunk below its breakout level of 2,561. The breakout took place in mid-April but the subsequent rise was not able to garner volume. In addition, quarterly momentum was not able to move above its moving average and resistance and is easing.

For the STI, the negatives included the breakout taking place on low volume, and after the breakout, volume continued to contract as the index struggled to make headway. 

At that time, it was clear that the breakout was weak. For instance, the daily candlestick chart shows higher volume on the black candle days, and lighter volume on the white candle days, and we ended the previous week on April 17 on black candle. On April 24, the STI has also closed on a black candle day.  

Short term indicators are on the whole negative. As at April 24, short term stochastics has turned down, the 21-day RSI is retreating from its equilibirum line, and ADX is neutral and could easily turn up, as the DIs turn negative.

At the same time, the medium and long term moving averages continue to fall, and this decline could also have exerted some downward pressure.

The earlier break above 2,561 had indicated a target of 2,889 which is now on the back burner.

The year’s closing low reached on March 23 was 2,231, and that is the level that needs to hold on any decline.

The S&P 500 (SPX) closed at 2,797 on April 23, down 2 points on the week. By all accounts it has greater strength than the STI on a relative basis and also on a standalone basis. However, the SPX suffers from the same drawback as the STI. Upmoves have been accompanied contracting volume and this could indicate a classic bear market rally. The upside from the SPX’s break above its resistance at 2,620 is 3,023.

The SPX made a low of 2,237 on March 23. Any retreat is likely to meet with support at the breakout level of 2,630.

Both the STI and SPX have definitely experienced more than a dead cat bounce, but could have difficulty making further headway.