Is the Singapore Market heading for correction??

Due to recent market volatitility, I have received a couple of queries with regards to the direction of the market in the short term. Some have asked me about the support for the straitstimes index whereas some have asked me whether is this a good time to buy stocks. It seems to me that the best way to reply to these queries will be via my blog. I shall begin my analysis using the straitstimes index chart as per closing today.

First and foremost, you will notice that the STI has been dropping since 04th Aug 2009. It has been on a consistent downward trend until 11th Aug 2009 when there was a mini rally. However, the index closed down today again. If you refer to my previous posting on how to read a chart, you will notice that the circled areas are all pointing towards a downward movement in the near term. Share prices is closing below the short term moving average, MACD showing bearish forces in play and stochastic oscillator also pointing towards bearish market sentiment. In my point of view, the market is heading for a correction at this point of time due to sharp appreciation of share prices for the last couple of weeks.

There is two outcome that is possible from my study of the chart. The market can either be heading for a consolidation which will most likely last for a few weeks before it begin to rally again. During this period of time, the market will sideway trading for awhile before eventually setting on a primary trend. This trend can either be up trend or down trend. Will need more market signal before i can comment. The second outcome will be market panic selling which results in share prices falling dramatically to pre-march 2009 level. As per the chart above, the moving average is at a junction of changing trend. There is a high possibility that the trend might reverse in the near term to a downward trend should the moving averages crossover.

The support for STI according to fibonacci retracement at 38.2% should be about 2536. The key support to look at will be 2485, this is the level at 50%. Once this support is breach, it will usually mean a reversal in trend. In my point of view, this would not be a good time to buy any stocks for the moment. It will be better to wait for the potential down trend to end before you make any purchase.