STI Could Breakout (if CNH Allows)
Matt Simpson October 21, 2021 8:31 AM
We’re taking a longer-term technical look at the Singapore’s STI (Straights Times Index) as its rally has approached a key level of resistance.
We can see on the weekly chart that the STI is within a 5-wave impulsive move which began at the March 2020 low. Wave 3 stalled at a 127.2% Fibonacci ratio and Feb 2020 high, and may have since completed a 3-wave correction. We suspect the correction is complete as it held above 3,000 (significant round number), the May low and 200/50 week eMA’s.
Furthermore, as bullish momentum has now realigned with wave-3, we’re now anticipating an eventual break above 3224 on its way to our wave-5 target around 3400. The target coincides with the April 2019 high and 38.2% expansion. However, there may be reason to suspect it may not break higher immediately and instead pull back from current levels beforehand.
If we look at the relationship between the STI and USD/CNH, they share an inverted correlation. It is not perfect, but good enough to see a relationship exists over the longer-term. CNH is offshore Yuan, and if it increases in strength (USD/CNH moves lower) then it can be supportive of Asian markets such as the STI as CNH flows into them. However, by using a correlation indicator of the two markets we also note that the rolling 1-month (20 day) and 3-month (60-day) correlations are increasing which show the relationship has become increasingly stronger over recent weeks.
It is therefore worth noting that CNH is approaching a key level of support at 6.35 and, if it holds (at least initially), it suggests that STI may stall or retrace from the nearby resistance zone.
If USD/CNH bounces, STI could retrace
The daily chart shows its rally has stalled at the lower bound of a resistance zone. A spinning top Doji and 2-bar reversal (Dark Cloud cover) suggest near-term exhaustion on the daily chart, and a move lower could be a higher probability event should USD/CNH bounce from support.
- A break below 3185 confirms a minor correction is underway against the daily trend.
- However, as the daily trend remains bullish above 3088 it leaves quite a bit of wriggle room for a retracement, should USD/CNH bounce considerably from current levels.
- Overall, we anticipate STI to eventually break above 3244 as part of its wave-5 move.
How to trade with City Index
You can trade easily trade with City Index by using these four easy steps:
Open an account, or log in if you’re already a customer
• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
- Search for the company you want to trade in our award-winning platform
- Choose your position and size, and your stop and limit levels
- Place the trade
This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.
StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.
In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.
StoneX Financial Pte. Ltd. is not under any obligation to update this report.
Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit cityindex.com.sg for the complete Risk Disclosure Statement.