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STI readies for rebound

Goola Warden
Goola Warden • 2 min read
STI readies for rebound
SINGAPORE (March 13): Finally, a white candle appeared on Friday the 13th.
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SINGAPORE (March 13): Finally, a white candle appeared on Friday the 13th.

A white candle shows that the Straits Times Index closed at a higher level than it opened.

Daily chart with oversold quarterly momentum

On a positive note, the white candle formed on the highest volume day of the week, indicating that traders are ready to take a punt, and perhaps traders who sold short needed to cover positions.

Since quarterly momentum is oversold and testing a five-year low, and the STI is testing an area near the May 2016 low of 2,623 at the same time, a rebound is imminent.

Daily chart with oversold short-term indicators

In addition to an oversold quarterly momentum, short-term stochastics has been stuck at the bottom of its range and is ready to turn up. The 21-day RSI is at its low and poised for a minor positive divergence with the STI.

Elsewhere ADX is at 45 and the highest level in three years. Similarly, DI is at its highest level in three years, indicating a very significant oversold position. All these indicators point to at the very least a temporary rebound.

Signs of an alleviation of selling pressure and the build-up of some buying demand — albeit temporary — is likely to lead to a sharp rebound early in the week. Resistance appears at 2,772. This rebound may fizzle out toward the second half of next week, as the market nears the vernal equinox.

Whether support at the 2,620 area holds remains to be seen. There is no change in the direction of annual momentum and two-year momentum which are both falling in tandem. And the 50-, 100- and 200 day moving averages turned down simultaneously and are poised to draw apart, another sign that the decline may not have run its course.

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