Our expert, Jeffrey Tie, takes you through a step-by-step analysis of two STI charts to see how you can make investment decisions by analysing trends from the market’s current resistance zone.
Straits Times Industrial Index, 1-week candlestick chart. Image: Jeffery Tie
Here are two charts of the Straits Times Index, side by side. The text is colour coded for easy reference to the charts.
The left side chart is a weekly candlestick chart on an exponential price scale. This chart has a long-term trend pattern (expressed by the green swing) representing the trend of the yearly time frame.
Close observation shows the current long-term trend pattern is sideways, starting from the first sideway low in Oct 2011 (2521), and the swing high of April 2015 (3549.85). Subsequently, this index attempted a breakout in February and in May of 2018.
Both attempts to resume the higher highs, higher lows uptrend pattern failed. This strongly suggests that the sideway pattern is likely to continue. As the market is currently nearer the upper sideway resistance, the immediate direction for this index is to move to the sideway support level of 2521.
Looking at the chart on the right, it can be seen that the trend represented by the red swing line is in a clear downtrend pattern, marked by lower highs and lower lows.
As the current outlook for the red swing is down, long term holders of the component stocks will have to see and tolerate draw downs and paper loss in their portfolio.
It is highly likely that this red downtrend can continue and may end near the green support low of 2521. It will probably take some significant time to finally approach 2521.
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About the Author
Jeffery Tie lectures on Trading for AB Maximus & Co. He was previously from Refco Singapore and CMC markets. He is also a registered instructor with the International Shinkendo Federation and previously wrote a 3-part article on the similarities between the philosophies of Martial Arts and Trading for Chartpoint Magazine.