SINGAPORE (July 14): Here are some charts to look out for this coming week

Straits Times Index (daily)

Despite a 26-point rebound on July 13, the sideways range developed by the Straits Times Index (3,235) during the past three months looks set to continue. The 50-day moving average, currently at 3,231 has become less meaningful as it is unlikely to immediate support or resistance in the near term. 

During this sideways phase, quarterly ROC has fallen to its equilibrium line. ADX is at 9, the lowest in 18 months. The DIs are neutral. Even if the DIs turn negative, movement in the STI is likely to be limited. The lower the ADX, the less volatile the index, hence the current narrow range.

Overall, the chart pattern looks like a rectangle which is a continuation pattern in an uptrend. The lower boundary coincides with the 100-day moving average, currently at 3,190. The upper boundary is at 3,260 and this year’s high was at 3,275.

The consolidation/correction could take a couple of forms. Prices could go sideways as indicators move to neutral and even negative levels. This looks more probable. Under this scenario, quarterly ROC could rebound off its equilibrium line by next month. If this materialises, it would reinforce the rising two year momentum and the STI would attempt to break above 3,275 and resume its uptrend.

A more unlikely, but not impossible outcome is for the STI to break below 3,188-3,190. This probability is lower as ADX is in single digits and long term indicators are maintaining their uptrends.

Hang Seng Index breaks out 

The Hang Seng Index’s (26,346) 302-point surge on July 13 took it smartly up, off its 50-day moving average at 25,571. It has now gained significant relative strength compared to the STI. ADX has rebounded as DIs turned positive. A break above the several times tested 24,107 in early May had indicated an eventual target of 27,000, and this is about to be attained. There could be a new target from an upswing after the break above 26,000 on July 13. But, with the appearance of a minor shooting star followed by a doji on the candlestick chart, the HSI may pull back early next week first.

North Sea Brent may stabilise             

North Sea Brent’s (US$47.30) down-momentum has been arrested, albeit temporarily. ADX has turned down from a high level of 40, and the DIs are now neutral, suggesting that the strong trending tendency has stopped. The rebound is likely to encounter resistance at US$49.17. A breakout coupled with a recovery by quarterly ROC could turn the tide but this appears difficult at present. Quarterly ROC continues to fall and is in negative territory. Support has been established at US$44. There is still a downside target of US$41 which will only be invalidated if prices can get above US$49.20 comfortably.