Straits Times Index bearish picture unfolding with multiple omens
- The first bearish signal in the Singapore Straits Times Index appeared at the end of May as a pin bar at a crucial big-picture 76.4 percent retracement fib ratio. The combination of pin bar and fibonacci retracement foretold strong overhead resistance.
- By the end of June, the pin bar evolved into an Evening Star which I analysed as Straits Times Index bearish sign #4 in combination with three earlier elements.
This was what I wrote in the last paragraph:
The Straits Times Index may or may not fall instantly. The last time an evening star was printed at this resistance (see blue box), the market consolidated for another 5 months before selling big in the sixth (see red arrow). Can we expect a repeat? It is hard to say. But investors who give a lot of weight to signals coming from technical analysis will do well to plan for the worst. And any consolidation between now and the forthcoming correction should be employed with some urgency.
I profess that it looks like verbal diarrhea with very little substance but this is what I meant in point form.
- Technical analysis deals with probabilities.
- Can an evening star predict? Yes it did so the last time round.
- Can it repeat? Yes.
- Unfortunately the only thing we cannot do is make promises with this sort of analysis.
The set ups predict bearish movement so investors and traders should protect their own investments
Now this is the most important takeaway:
But investors who give a lot of weight to signals coming from technical analysis will do well to plan for the worst. And any consolidation between now and the forthcoming correction should be employed with some urgency.
It means if you believe technical analysis at all then you should plan for the bearish setup. Be prepared to act according to your own investment and trading plan since charts have provided a hint already.
Straits Times Index Evening Star Setup
Monthly chart – August extends May and July bearishness
- Evening star was a continuation of pin bar action at end of May.
- Evening star is a bearish set up.
- Major 4-year trend line broken.
- July was a consolidation-retracement-pullback; a pullback is where buyers who did not believe the bearish set up buy the dip but which long term investors may be using as opportunity to exit at high.
- August movement down so far is an extension of the bearishness that started by the end of May.
- Look for further correction until support found.
Weekly chart – Price action shows reaction to resistance zone; pullback
- Clear resistance zone that is tried and tested.
- July price action a pullback to re-test the validity of resistance zone.
- Until this resistance is overcome, STI upside is capped.
Daily chart – Bearish reversal chart pattern; 50-day exponential moving average as resistance
- The 50-day and 200-day moving averages are converging setting up a potential ema death cross.
- Straits Times Index is now lower than its opening at the beginning of the year for the second time.
- The longer STI stays below its open price, the more bearish market sentiment is going to become.
So what should we look out in the near future
Since we started out with the monthly chart, this is the chart we should go back to look for strong supports. A death cross is a lagging indicator so it has a lesser role to play when we look for predictions about the market. However its appearance will act as confirmation. Since the fibonacci retracement that we drew has done so well, regard its levels as important input that other players in the market are using.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
Soh Tiong Hum is a member and regular speaker at Technical Analysts Society Singapore events and has a bi-monthly lunch time event at IG Singapore on forex and stock markets. He is an avid blogger on technical analysis topics; his Twitter account @sohtionghum
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