In the above chart of the STI daily, we can see a very clear trendline that can be drawn from the beginning of the late March09/ early April09 rally.
This trendline is that it links all the major swing lows of the entire run up, including the recent pullback to the 2520 region. We can observe that there has not been a single trendline violation since the beginning of this run up.
The significance of this is that (1) it should act as interim support for the STI and (2) should this trend line be broken, it would turn into heavy upside resistance.
The high and low of the range is delineated by the week ending 7August09, when the STI sold off from the 2700 mark. Not including this week, the STI has been trading within the high/low range of the week ending 7August09 for the past 3 weeks.
The low (2542) and high (2700) of the range are the key support and resistance zones respectively. Typically, a consolidation range as such is a prime candidate for breakouts. Volatility in the market moves in cycles, and usually periods of low volatility (past 3 weeks) beget periods of high volatility.
In the chart above, we have delineated 2 scenarios for the STI. One for an upside breakout and another breakout to the downside. What we are looking for is for the STI to trade past key support (2542) or resistance (2700) and come back to test it again before pushing off.
For example, a break below key support at 2542 turns key support into key resistance. A second rejection of 2542 would usually be a high probability indication that the STI would be pushing lower. The reverse holds true should the STI trade to the upside beyond 2700 as well. In the interim, last week’s low, 2574, should hold up as shorter term support.
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