Bearish signal looming for STI as sell elements fall in place
2 out of 4 elements of bearish trade signal now in place
Straits Times Index is setting up to print a very good trading signal that is made up of 4 elements as we discussed here. In conjunction with a bearish MACD divergence we pointed out 2 weeks ago, the whole setup says that STI may be doing a correction soon.
The 4 elements in this chart
Element #1 is roadmap. The roadmap present here is an overhead resistance (green zone). This zone is a strong level that we have been following as early as June 2013. In a sequence of 1-2-3-test-and-fail price action, we can see that the resistance zone is significant and well followed by the market. Since MACD bearish divergence suggests a reversal outcome, the roadmap presents a ‘hard place’ for STI to change direction.
Element #2 is a head and shoulders reversal chart pattern. Thin purple line in chart traces such a pattern. It has a high probability outcome. A bearish reversal chart pattern and a resistance are a match made in heaven.
The head and shoulders chart pattern also leads us to elements #3 and #4. Element #3 is a bearish candlestick pattern that traders have to look out for at right shoulder. Element #4 is a trend line break. It is an outcome that confirms the expectations of all three previous elements.