Key Support for STI at 2237

Although STI's close on 22June09 (Monday) was only down slightly, the intra-day price action indicated to us that immediate momentum is pushing lower. Thus, the probability of a down day on Tuesday, 23June09, should be rather high, unless the US session has a strong upswing. 2237 is critical support and investors should watch this level closely.


S&P 500, Daily, 19 June 09



The up trend for the S&P 500 is still in tact, although at this point, it has slowed down, as can be seen by the shift in gradient of the trend.

After a test of the 200 day moving average as support last week, last Friday's trading session ended neutral as a doji, telling us that the S&P 500 is still undecided in the short term.

With the market being neutral in the short term, the next 1 or 2 trading sessions are important. A close below Friday's low might take the S&P 500 back towards 900 where as a higher close should push it to resistance at about 930.


STI, Daily, 22 June 2009



Similar to the S&P 500, the STI's overall trend still remains biased to the upside. However last week, we were cautioning investors after the STI formed a momentum divergence off 2400 mark, confirmed by poor market breadth.

This is possibly one of the times where the trend is beginning to bend. On Monday's (22June09) session we closed at 2267. Although the close for 22June09 is only 6 points lower than the open, the intra-day timeframe (not shown) is indicating to us that there is a high probability that price action will take the STI lower.

It is important to watch recent low of 2237. A close below 2237 would be the STI indicating to us that momentum is shifting gears and is heading down.

We advise investors to cover their longs should this happen to protect capital and preserve profits. If there is another leg to this rally, there will be ample opportunity to re-initiate positions.


Dollar Index, Daily, 19 June 2009



The Dollar index has been consolidating thus far for the month of June.

While this somewhat coincides with the consolidation in the global equities market as well. This is more likely due to the commodity complex than the Dollar. Until the Dollar begins to trend more decisively the CRB will likely move to the beat of its own drummer.


CRB Index, Daily, 19 June 2009



Despite the consolidating Dollar, the CRB has pushed lower on Friday's trading to close at 252 below support at 253.

Support will most likely be around the 250 level and the 200 day moving average.

In our report on 11June09, we mentioned that the US 10-Year Note had sold off sharply, and this was the bond market telling us that the markets are beginning to price inflation into the system.

Commodity markets are usually associated with inflation and at this juncture, we might be transitioning from "inflationary growth" to "unhealthy inflation". A hint of this might be seen from last week's trading where the S&P 500 attempted to edge higher despite the CRB pushing lower.

Transition phases are notoriously difficult to call. At this point in time, we will have to give the CRB-equity relation more time to unfold before we can be more certain.

In the mean time, we should focus on the technicals of the equity markets since the inter-market elements of the Dollar and CRB are unclear at the moment.









Conclusion
The next few days of trading should play an important part in determining the direction of the STI. 22June09’s intra-day price action looks particularly bearish and unless there is a sharp upswing in the overnight US session, there is a high likelihood of a down day today.

Watch the 2237 level closely. This is the most recent low for the STI. Should the STI crack 2237, it would indicate to us that immediate momentum has a downward bias and this in turn should take the STI lower.

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