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STI technical analysis: Singapore Straits Times Index bear market yet?

Is Singapore Straits Times Index (STI) in bear market now or a correction only?

Local stock market investors and traders are reasonably anxious about the direction of the STI. After all, the Straits Times Index fell from multi-year highs 3464.79 of to a low of 3094.86 in four weeks. This represents a 10.7 percent loss. The action could be just a correction in an upward trend market or it could be an ominous sign of reversal to come. Or has it reversed already?

 

Looking out for the death cross in 50-day and 200-day moving averages

One of the ways to find a bear market is to look for a ‘death cross‘ in two moving averages – a short term and a long term one. Some other people use different moving averages. It really does not matter so there is no one superior method than the other. What matters is that the moving averages form part of one’s trading or investment plan and secondly that it be used consistently. Together, the method provides a clearly visual and objective look at trading and investing.

A death cross forms when the shorter term 50-day moving average crosses the longer 200-day moving average from the top cutting to the bottom. It is used as a confirmation of a bear market or the start of a bearish trend. A death cross is not the fastest means but is fairly reliable.

Daily chart of Straits Times Index STI

STI – deep correction but no death cross

Straits Times Index did a deep correction

The STI do not print bearish reversal yet. We do not see any death cross although the move is certainly very bearish. In those four weeks, the index fell below multiple-year highs (years 2010, 2011 and 2012 – see red stars). This is a sign that the rally earlier this year does not have strong support.

In this chart, readers can see what a death cross looks like. At the blue star, a 50-day moving average in red cuts the 200-day moving average in black. Because moving averages are derived from price and lagging behind, a death cross will certainly follow deeper losses. This is little consolation for stock market participants.

There is an important thing to note about deep corrections such as the recent ones. Despite it can certainly lead to a lot of losses for leveraged traders who do not have enough trading capital, markets can some times rebound sharply like points A, B and point C in the next chart. This tells us that a death cross in the near future cannot be predicted with certainty.

 

A slightly faster bear market signal

Markets often print distribution patterns before going into bear markets. These are patterns that move sideway during which there is a lot of selling action. Big players use this duration to exit the market while small investors might be lulled or encouraged to buy more. Such a pattern can be seen below – a triangle chart pattern framed by points D – E – F – G.

STI chart showing bear market late-2007

History is a good teacher – Straits Times Index STI prints distribution just before bear market back late-2007

In this telling pattern, the index tests the 200-day support and the 50-day resistance repeatedly. In a climatic move, the market breaks down sometimes with runaway gaps. Such signs will precede a death cross and can be used as a earlier signal.

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’. Operates multiple strategies.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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2 thoughts on “STI technical analysis: Singapore Straits Times Index bear market yet?”

  1. boonpin says:

    TiongHum, from the chart I see that by the time 50MA crossed the 200MA, the index is already deep into correction, and this is not much “meat” left for shorting. Some cases, they went further down, some actually rebounded back. So what sort of trading do you advise when the dead cross is confirmed?

    1. Soh Tiong Hum says:

      Hi Boon Pin, the clue to get more meat is in the last two paragraph starting with “A slightly faster bear market signal…”. As for confirming a dead cross, the logical trade after it happens is to short any pullback.

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