STI closed below support the 1718 support level yesterday (close at 1705). This is a generally bearish sign. However, the key number to watch now is 1677, the recent short-term low. The STI has made two lower highs at 1959 and 1781. Lower highs are indicative of weakness. A close below the recent low at 1677 will be confirmation to this weakness, telling bears that there is little buying power present. This should help to push the STI towards the psychological 1600 level.
The STI typically trades in tandem with the S&P 500. In last week’s report, we stated that if the S&P 500 stays above 857, the STI should stage a “catch up” rally, because the STI closed flat on 29 January 2009 when the S&P 500 rallied sharply. As mentioned above, the S&P 500 failed to rally, and the decline last Friday has taken the STI down with it today (2 February 2009).
Today the STI closed at 1705, below support at 1718. A good gauge for whether we will see a move to the 1600 level will be how the STI reacts to recently formed support at 1677. A close near the low of the day below 1677 should bring in sufficient selling to take the STI to the 1600 level.
A move below 1677 is significant at this point in time because the STI has already made two rally attempts to 1959 and 1781, both of which have failed. 1959 and 1781 are short-term highs and 1677 the most recent short-term low. The STI closing below a recent short-term low usually confirms that the market weakness and attracts selling.
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