Straits Times Index bearish sign #4 – evening star
At the end of May, I forewarned in my posting ‘Technical analysis: N225, HSI, STI price action rejects Fib ratios‘ that regional stock indices paint very bearish signals at confluence levels on the monthly chart. These charts combined three elements in each one that stock investors should pay attention to:
- Existence of pin bars tell very negative sentiment in the stock markets
- A confluence past resistance and critical fibonacci retracement levels say the indices face very strong obstacle on the way up
- When the signs happen on the monthly chart they become a very important signal because this time frame is one where big long term players will watch closely
Each element above is not very strong. A lone pin bar has very little meaning if at all to a trader. But a pin bar at strong resistance printed on very high time frame makes the combination very compelling to watch closely.
Technical picture of the Straits Times Index at the end of May
Reinforcing the bearish view
The three signs coming together says the Straits Times Index may do a bearish reversal. If this did not alarm investors yet the addition of an evening star at the close of June must mean something more. Now it looks like this:
- The first three signals were vindicated when June was dominated by sellers
- Traders who ignored the earlier signs are not likely to ignore sign number four anymore
More investors and traders are likely to join the bearish camp.
Evening star completed following the pin bar at end of May
What will happen to the Straits Times Index following an evening star?
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.
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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"I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."