The Straits Times Index (STI) closed lower last week while posting an inside trading range. Trading inside of the previous week’s range is often indicative of impending volatility. The fact that the index stopped last week at 3029.92, slightly below the February 21 top at 3031.45 is a sign that the selling is greater than the buying at current price levels.

With the chart pattern suggesting a possible double-top coupled with impending volatility, a strong bias to the downside may be growing. The double-top chart pattern will be confirmed by a trade through 2906.58. This action will turn the main trend down on the weekly chart and may trigger an acceleration to the downside. This formation will be negated if 3031.45 is violated. If this occurs then the index should run into resistance at 3057.28.

Based on the main range of 2606.52 to 3031.45, a major retracement zone has been created at 2818.99 to 2768.84. If the main trend turns down then this zone is the next likely downside target. A break into this area will represent a normal 50 to 61.8 percent retracement and could attract fresh buying by traders seeking to go long value.

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The weekly Straits Times Index resumed the uptrend that had stalled the past two weeks after the index topped at 3031.45.  Last week’s rally through this top also created a new higher swing bottom at 2906.58. The main trend will remain up on the weekly chart as long as this price level remains intact.

The first upside objective of this current up leg is 3062.28. This is followed by the next resistance level at 3144.78. A rally into these two levels will put the index in the same distribution area that produced a strong sell-off during the Spring/Summer of 2011. Based on this assessment, this should be considered a major resistance zone.

Upside momentum is going to be the key as to whether the rally stalls in this area or accelerates through it. The key to this expanding volatility will be volume. Rising volume will be necessary to drive this market to the August 1, 2011 top at 3227.28 over the near-term. Without it, the rally may become labored and vulnerable to periodic retracements. This type of trading action may be beneficial to the rally if buyers continue to come in on the breaks. In addition, it will prevent the market from overheating and becoming overbought.

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The Straits Times Index followed through to the downside early last week, helping to form a new main top at 3031.45. By the end of the week, however, the index had regained more than 50 percent of the week’s range. The strong comeback may be a sign that the current break is more corrective in nature rather than a change in trend.

Since forming a closing price reversal top on the weekly chart the week ending February 24, the Straits Times Index has sold off from 3031.45 to 2906.58. This created a retracement zone at 2969.02 to 2983.75. The index is currently testing this zone. A solid breakout over this area will be a strong sign that buyers have returned to the market. If it fails to rally then the index is likely to continue to correct.

Looking at the bigger picture, the main range is 2606.52 to 3031.45. A 50 percent retracement of this range is 2818.99. Typically, a closing price reversal top leads to a 2 to 3 week break equal to at least 50 percent of the last range. The inability to trade down to this objective is a strong sign that sentiment has once again shifted to the upside.

This week, how the market reacts to the retracement zone at 2969.02 to 2983.75 will dictate the index’s momentum and strength. Regaining this zone is likely to encourage more buying, but a failure at this zone could mean that short traders are taking control.

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The Straits Times Index (STI) sold off early last week, taking out the previous week’s low and confirming the minor top at 3031.45. By the end of the week, however, the index closed higher, putting it in a position to continue its powerful weekly uptrend. A break-out through the minor top could trigger a rally to 3070.00 over the near-term.

A failure to follow-through to the upside could mean that bullish sentiment is shifting, making the index vulnerable to a short-term correction. The first sign of weakness will be a break down through 2945.00. Based on the major range of 2606.52 to 3031.45, this index has room on the downside. A normal correction could take this index to 2818.99 to 2768.84.

Because of the strength of the rally from the December bottom to the February top, value-based buyers are likely to step into the market if this retracement zone is tested. Investors should keep in mind that this anticipated break is not expected to be trend changing according on the weekly chart, but could serve as an important re-entry zone for bullish traders.

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After rallying to 3031.45, the Straits Times Index (STI) sold off sharply and posted a lower close for the week. This formed a weekly closing price reversal top, signaling the start of a possible major correction. The weak close puts the market in a position to test last week’s low at 2956.66. A trade through this level will confirm the short-term top.

A weekly closing price reversal top typically begins a two to three week correction equal to 50 percent of the last major range. In January, the STI bottomed at 2746.40 before rallying to 3031.45. This range has created the first downside target at 2889.03. Another range was created by the December bottom at 2606.32 and the February top at 3031.45. This range has created a possible downside target at 2818.89.

Looking at the short-term daily chart, the STI is poised to take out the daily support at 2952.20. A move through this level will turn the main trend to down. This move could trigger an acceleration to the downside which could lead to the anticipated break into the possible support zone created by the two 50 percent levels at 2889.03 to 2818.89.

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The Straits Times Index closed above the psychological 3000 level for the first time since August 4, reaffirming the uptrend that began when the index posted a bottom at 2606.52 on December 20. The strong close also represented the eighth consecutive week that the index posted a higher-high than the previous week. You have to go back to late 2010 even to see the last seven week rally.

Although the main trend turned up on the weekly chart when the market crossed 2793.08, the recent acceleration to the upside was triggered when the market broke through the October 28 top at 2905.72. This action has created a clear path to the next resistance level at 3080.00. The size and duration of the current rally suggests that the market has set aside the fear of a global recession and sovereign debt contagion in Europe.

With the uptrend clearly established, long traders should be concerned about possible resistance targets. In addition, they should also watch for a shift in sentiment which is usually accompanied by a closing price reversal top on either the daily or weekly chart. Finally, if a short-term top does form, the first downside objective will be 2957.84, followed by 2874.62.

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Last week the Straits Times Index soared after taking out a major Fibonacci retracement level at 2957.84. This price level represented a 61.8 percent retracement of the break from the August 1, 2011 top at 3227.28 to the October 5, 2011 bottom at 2521.95.

While some investors may see this as a bullish sign, others may view it as an exhaustion move since the index closed well before the global markets took a hit later in the day because of a change in risk sentiment. If a top has indeed been reached at 2994.50, then the STI is set up for a substantial break if investors decide to bail out. Based on the rally from December to February, the index has plenty of room to the downside if the index completes a normal 50 percent correction.

If you study the longer-term charts, you will notice that the November 9, 2010 top at 3313.61 to the October 5, 2011 bottom at 2521.95 has formed a major retracement zone at 2917.78 to 3011.20. The index is currently trading inside of this zone at 2917.78 to 3011.20 so a top at this time wouldn’t be a complete surprise to long-term chart watchers. Even though there is no sign of a top, traders should anticipate a sympathy break this week which will allow the index to catch up with the rest of the global indices.

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The Straits Time Index continued the impressive rally last week that began in late December. The power surge on Friday was triggered by the bullish U.S. jobs data that drove fresh capital into global equity markets as well as other higher yielding assets.

Last week’s rally blew through a pair of major tops at 2905.72 and 2910.28 from September and October respectively. The strength of the rally was surprising because it’s been months since I’ve been able to say that investors were actually buying strength rather than waiting for pull-backs in the market. This can be interpreted as either great demand for equities or a sign that short-traders have finally given up on trying to press the market lower.

Technically, the main range is 3227.28 to 2521.95. This has created a key retracement zone at 2874.62 to 2957.84. Now that the index has crossed over to the bullish side of the 50 percent level, 2874.62 should become good support. A break back under this price level will be a sign of weakness. The next objective is the Fibonacci or 61.8% level at 2957.84. This is a natural level at which to take profits so long traders should watch carefully for a technical bounce. Aggressive traders may decide to start a new shorting campaign at this price but this decision will depend on how much momentum the market has when this level is being tested.

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The Straits Times Index soared last week, taking out the October 28 top at 2905.72, reaffirming the weekly up trend and setting up the market for further upside action. This was the fifth consecutive week that the index produced a higher-top and higher-bottom, indicating that strong buying was behind the rally.

Previously from October 5 to October 28 the index rallied from 2521.95 to 2905.72 or 383.77 points in 3 weeks. A 383.77 point rally from the December 20 bottom at 2606.52 projects the next possible upside target at 2990.29. Time is ahead of price indicating a powerful rally is taking place.

Beside the price target at 2990.29, A Fibonacci level or a 61.8 percent retracement of the break from the August 1 top at 3227.28 to 2521.95 is also a nearby upside target at 2957.84. This marks 2857.84 to 2990.29 a key resistance cluster. Traders should watch for a technical bounce or profit-taking break if this area is tested. Now that the index has entered a major retracement zone, the 50 percent price at 2874.62 becomes support.

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Despite low volume and falling volatility, the Straits Times Index finished higher for the week, setting itself up for further upside action this week. The slow and steady uptrend the index is experiencing is strong evidence of an institutional rather than speculative presence. With the market nearing tops not seen since late October, small investors have remained relatively absent from the rally. This stems from their decision to remain on the sideline or inactive during the most volatile stage of the market from July 2011 to October 2011.

Technically, the current main range of the Straits Times Index is the July top at 3227.28 to the October bottom at 2521.95. This creates a key retracement zone at 2874.62 to 2957.84. Last week’s close at 2849.38 has put the index in a position to challenge this area. The initial reaction is likely to be to the downside as this is a natural profit-taking zone. New shorts may also emerge especially if the fundamentals shift sentiment toward a risk off scenario.

Even if the index begins a short-term correction, the uptrend is not likely to be threatened. The charts indicate the main trend on the daily chart will remain up unless 2606.52 is violated. A break through minor support at 2743.66 will give traders an early warning that the market is in the hands of sellers. Once inside the target zone at 2874.62 to 2957.84, traders should watch for resistance at a pair of old tops at 2905.72 to 2910.28.

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