STI - Profit taking likely to set in as STI moves close to 1800

Despite finishing at its day’s high of 1766.08 yesterday, volume was a meager 645m units valued at $777.6m as Wall Street’s expected overnight rally coincided with players’ wish to start the ox year on an auspicious note.

The STI is about where it was at end-December (1761.56) as January has turned out to be a disappointment after a rousing start, climaxing at 1959.95 intra-day on Jan 7 although the day’s close at its lowest of 1880.58 should have been seen as a sell signal.

The high turnover in early January was misleading and it is proven wrong to view this as ushering a strong January effect run-up. In fact it marked a selling climax after the rebound in December and the lesson is likely to last longer in players’ minds.

This month has continued to see reduced volatility with the index ranging from a 1960 high and a 1677 low (283 point band) compared to an even milder 205-point trading range in December (1844high/1639low).

November however saw higher volatility, a 363 point movement between 1933.51 high and 1570.23 low) while October was extremely volatile with the STI swinging 925 points between 2399 and 1474.

From this behaviour it can be seen that a key resistance going forward is around 1930-1960 but before this 1840-50 is also a significant hurdle which is likely to cap the latest bounce.

In fact on a closing basis, there was a rapid loss of support from 2009 closing high of 1913.66 on Jan 5 to 1881, 1828, 1806, 1776 and 1762 in the immediate following 5 trading days.

Thus profit taking is likely to set in today as the STI is already at 1766. Stocks which enjoyed a strong run-up yesterday led by banks may be more vulnerable as the STI is not expected to break 1800 easily.

The STI’s technicals such as RSI at 52 are showing mildly overbought levels but this should not lead to a serious pullback.

Overall the index is in consolidation mode around 1700-1800 with buying interest expected to be strong in the 1750-80 support while profit-taking becoming more aggressive around 1800-1850.

Sponsored Links