Chart 1: STI with moving averages and momentum
SINGAPORE (Aug 24): The Straits Times Index continues to hover around a support area, between 3,084 and 3,125 for the past 10 trading sessions. Volume has contracted during this formation, suggesting that current moves could be temporary floor. Quarterly momentum has turned up, but its trend remains downwards. And, the STI remains significantly below its moving averages. The 200-day moving average is currently at 3,212. The surge in volume on Aug 15 looks increasingly like climactic selling.
Chart 2: Short term indicators bottoming
A minor positive divergence is materializing. When the index tested 3,110 on Aug 15, 21-day RSI dipped to below 29. As at Aug 23, when the STI retested 3,110, 21-day RSI is at 30. Stochastics is turning from the bottom of its range. ADX is at 40 and the highest level in a year while -DI is at a 13-month high, at the top of its range, pointing to an extensive oversold condition. These indicators point to at the very least a temporary bounce. Since sentiment remains poor, the initial bounce may find resistance at the 200-day moving average.