The Straits Times Index is a technical sell amid bearish price action and the failure to overcome a key resistance hurdle, Phillip Securities said in a note on Monday.
“With the sharp rise in price in April, the STI has once again retested the critical resistance area at 3611 points. That was the high back in January 2018, and it seems to be an obstacle for the bulls,” the note said.
While the index did briefly break above that resistance level, the bullish follow-through was weak and the STI closed both below that level and at the week’s low, “resulting in the formation of a Bearish Engulfing Bar rejection off the 3611 resistance area in the week ended May 4, 2018, signalling for a correction next,” it said.
The relative strength index (RSI) also shows a possible bearish divergence scenario if the 3611 resistance remains intact, Phillip Securities said.
“In January 2018, the RSI hit an overbought condition high of 74 while the STI formed a high at 3611 points. Fast forward to today, the STI broke a new Higher High (HH) in the week ended May 4, 2018, at 3641 points while the RSI formed a Lower High (LH) point at 62 signalling for a bearish divergence,” it said.
With the combination of the RSI’s bearish divergence and the index’s bearish rejection off the 3611 resistance, “expect the STI to head into a correction next to test the 3500 psychological round number followed by 3430,” it said.
It tipped an entry price of 3529, a stop loss of 3651 and take profit at 3430.
The STI ended Monday down 0.35 percent at 3532.86.