The Straits Times Index (FSSTI Index) performed against our forecasts and broke below pertinent support at the 1,640 level to finish 5.3% lower in the previous week. For the current week, we are expecting further downside as we believe that the selling pressure has not eased off.
After contracting for a period of around 10 – 15 days, the bollinger bands have just started widening which implies that more volatility may be forthcoming. Coupled with the 14-day RSI which still remains above the 30 mark and with the 14-day ADX that has recently shown a recovery, we believe that the present bearish trend still has additional room to develop.
Unless resistance at the 1,683 level (as derived from the 14-day moving average and a daily high) is taken out, we remain negative on the STI and expect it to fall to around 1,554 in the near term. This short term support level is derived from the 161.8% fibonacci extension of 1,780 to 1,675. However, in the event that this level is broken, we do not see any major support until the 63-mth low at the 1,473 mark.
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