Straits Times Index 3300 level broken, next psychological support level is 3100

In my previous write up titled “Is the market correction over? Don’t guess, let the indicators tell you” I commented that STI was staging a technical rebound and it needs to stabilize above 3300 points (around 1-2 weeks) in order for it to resume a more sustained upward move.  It would be safer to wait for the market to stabilize before going long again. And if 3300 is broken, next support level to watch out for would be 3100.

As we see now, the 3300 points has been broken within 5 days since the rebound on 8th August.  Even during the recent technical rebound, trending indicators such as MMA (multiple moving averages), parabolic SAR and MACD were ALL still negative, indicating high odds that the rebound could be short lived.  With the 3300 support level now broken, NO clear signal to go long yet…..wait patiently lor.

The obvious question is what could happen now that the support has been broken.  When is a good time to re-enter or has the market bottomed?  The interesting thing is that 2 days ago Morgan Stanley issued a report saying it could be a good time to reload. 

Again my thoughts are still the same…….no need to guess, let the indicators tell you. 

You will hear a lot of “noise” if you read newspapers or watch CNBC or Bloomberg or read reports.  You will hear conflicting comments which will confuse you more, some will continue to say the worst is over and that this is just a healthy correction within a bull market, while some will frighten you to say that be prepared to expect worse as the recession may just has started for the US economy.  To me, comments made by these reporters or market commentators are less important to what my “best friend” has to tell me……and he is none other than the “market” himself!!

So if you want to have a better feel of what is ahead, I suggest learning to read Mr Stock Market’s signals, ask him to show you his symptoms, which are all the technical indicators and historical patterns.  These data are FACTS since they are based on actual information ie historical stock price, stock volume and price patterns.

Technical Indicators:

For now, the symptoms for Straits Times Index (STI) are still NEGATIVE :

1.Multiple Moving Averages (MMA) – short term MMA all below long term MMA, means that medium term trend is DOWN. 

2.Moving average convergence divergence (MACD) – turned negative on 26th july and has since REMAINED negative, means STI trend is DOWN ( if you wish to learn about the basics of MACD, do read my recent writeup on this indicator titled What is MACD? )

3.Parabolic SAR – negative signal means trend is DOWN

4.Stochastics – this short term indicator turned negative again yesterday since rebounding briefly on 8th august, so even near term signal also DOWN

In summary, it would seem better to buy PUT warrants or go short than to go long for the time being since short term and medium term signals are ALL negative!!

Since I am not good at going short, I would just have to wait until either MACD or parabolic SAR for the STI to turn positive again before deciding. 

When will that happen? The beauty of technical indicators are that they will tell you WHEN it happens ;)  Patience is needed until that happens.

Article by : Rooney (I injured my leg last week while playing football with my friends)