STI Nears Reversal Zone

05/31/06 08:33:31 AM

by Arthur Hill

The Singapore Straits Times fell off a cliff in May but has yet to become oversold as it nears support.

Security: $STI
Position: Hold

Sharp declines are nothing new. The Singapore Straits Times ($STI) has been trending higher for years and suffered at least three sharp declines in the last two and a half years (gray ovals, Figure 1). These declines were around 5% and the index rebounded each time with a move to new highs. The most recent decline was more than 6% in two to three weeks and represents the sharpest decline of the three.

FIGURE 1: SINGAPORE STRAITS TIMES, WEEKLY. Despite trending higher for years, STI has suffered sharp declines in the recent few (gray ovals).

Graphic provided by: MetaStock.

Graphic provided by: MS QuoteCenter.

Despite this, I would still consider the long-term trend to be up. First, the trendline extending up from May 2004 has yet to be broken. Second, broken resistance at 2400 turns into support and this level has yet to be broken. There is also a small consolidation around 2400 in January and this further confirms support (black box). Given the sharp advance since October, the index is entitled to a pullback and this is a logical spot for support.

Even though support is near, a key momentum oscillator has yet to turn oversold and trigger a signal. On the previous two declines, the commodity channel index (CCI) moved below -100 and became oversold. The indicator became extremely oversold in May 2004 with a dip to -281 and slightly oversold in October 2005 with a dip to -113. The indicator is currently around -55 and I would like to see it dip below -100 before considering the index sufficiently oversold. Upon a move below -100, I would then look for a rebound back above -100 to trigger a bullish bottom pick.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.

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STI Nears Reversal Zone

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