Uptrend
The STI has bottomed at around 2950 instead of the expected 2850. As evidenced by the strong uptrend these three days, the STI is in a hurry to move up. As seen in the chart, the three blue bars have risen sharply with gaps in between. This sort of wave action confirms a Wave 3 structure. This is Subwave iii of a larger Wave 1 that is forming. The preceding two little red bars are Subwaves i (up) and ii (down). From next week onwards we should see Subwaves iv and v forming to complete Wave 1.
It is interesting to note the wave structure enclosed by the blue rectangle. In technical analysis, it is called an island reversal. It is preceded by a gap and is followed by a gap. Thus the structure is like an island. As it occurs at the bottom of a downtrend it is a bullish sign indicating reversal to an uptrend.
There is slight resistance to the current upward move at 3270, and strong resistance at 3340, as shown by the blue horizontal lines. There is opportunity to enter the market at about the bottom of Wave 2 which will come after Wave 1 is completed. This is to take advantage of the strongly rising Wave 3 that will follow. However, be ready to take profit near the top. The very volatile market these days does not warrant a buy and hold investment strategy.
I am troubled when I look at the monthly chart. As the STI is still within a long sideways trading range, I am not very sure it has formed a lasting uptrend.
Wave C (blue) is too short relative to the overall wave structure. A more reasonable position is shown by the label C? which has Wave C dropping to the levels of the two previous bottoms (labeled X). Anyway, this is obviously speculative, but it provides a cautionary warning. It would be wise to monitor closely and be ready to pull out at a moment’s notice. Or simply stay out of the market for some time.
I shall be away for two weeks. I shall skip my blog next week and return on 17 Nov.