The rally this morning was much stronger-than-expected, with the STI breaking through our initial 1706 resistance (100-day moving average and upper Bollinger Band) with relative ease.
However, the index did not quite manage to test the 10-month downtrend line (currently around 1750), and from the intraday technical indicators, it is quite unlikely to test it today.
For one, the intraday MACD indicator has not only just cut down (although still bullish), it is showing a bearish divergence signal to the price action.
Secondly, the intraday RSI indicator has done likewise ? bearish divergence ? as well as an overbought signal.
As such, we believe that investors should watch the 1725 support closely; failure to hold above this level could see the STI easing back to 1706 and possibly even the 1664-1681 region.
Nevertheless, we still feel that a near-term pullback is healthy and should help sustain the current technical rally.
As before, as long as 1455-1474 is protected, the index could still be heading towards 1960 in the coming weeks.
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