SINGAPORE (Sept 20): The confluence of the 50-, 100- and 200-day moving averages at 3,216 to 3,244 range provided resistance for the Straits Times Index, which was not able to move above this area. Instead, the index retreated as the 50-day moving average crossed below the 200-day moving average. In addition, quarterly momentum – which had tested its equilibrium line – is also retreating.

STI with moving averages and momentum

As prices were rallying earlier on in Sept, volume contracted. On Friday, Sept 20, volume expanded as the STI retreated, suggesting that selling pressure exists.

Short term indicators

Short term indicators reinforced the downturn by quarterly momentum. Short term stochastics is poised for a downturn from the top end of its range; 21-day RSI has turned down in mid-range but does not look negative. ADX is neutral after retreating from the top end of its range, and DIs are neutral.

In sum, the STI’s retreat that started during the week of Sept 16-20 is likely to persist towards the end of the month.

Support appears initially 3,100; the low of 3,056 on Aug 28 is the main support. Resistance stays at the confluence of the moving averages.

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Prices have been falling since the start of the year, losing more than US$2 or 23.4%. Since volume continued to expand as prices fell to their three year low, selling pressure is likely to persist. Short term stochastics is in mid-range, 21-day RSI is not oversold, and ADX is about to turn up as DIs turn decisively negative, suggesting that the decline has yet to run its course. The 2016 low of around US$5.45 should provide a temporary floor for the current downmove. The 50-day moving average, currently at US$7.15 is likely to act as a resistance line.