As a result of the sharp run up recently, the STI has become severely overbought. The correction in the recent few trading sessions is likely to be the unravelling of the current overbought situation. We are likely to see the STI continue to move higher after this pullback. In the weekly charts, the STI is showing a strong momentum convergence and the US Dollar is also weakening. A weak Dollar would push the CRB higher. This in turn would help lift the STI. Watch the Dollar for now.
We believe that momentum is pointing to higher prices at this point in time. Our argument for this is that on the weekly charts above, we have a textbook quality momentum convergence.
By this, we mean that price has tested the 1450 to 1470 region twice, but on the second test, momentum, as shown by the indicator is higher on the second leg down than the first leg. This tells us that there is internal push in the market. On the weekly charts, this formation took about 6 months to form and typically is a strong indication of higher prices to come.
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