Can Straits Times Index New High go higher?

The STI has also been trading sideways since the beginning of May09. It has tested the 2270 to 2283 level several times since, making higher lows each time.

As a result, the range that the STI has been trading in over May09 has been getting increasingly narrow. This can be seen on the chart where price action has been confined between the 2283 level and the trendline. The tightening of the trading range in such a manner usually indicates that the STI is going to breakout.

Yesterday, we saw the STI breakout of the range to trade above 2283. The push above 2283 should be the beginning of another leg up. We would like to see the other indices close above their recent highs as well. This would confirm that momentum is picking up in equities as an asset class and that the STI is not running up alone.

There is resistance at 2385 and subsequently in the 2450 to 2500 region. A word of caution at this point though. Although the STI has cleared 2283 as of yesterday’s close, the RSI is showing a potential momentum divergence setting up. It would be bearish for the STI should the next few days see a downdraft, as this would confirm that the momentum divergence is in play and this breakout is a head fake.

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