Looking at the past three bear rallies (two in 2008 and one in 2007), the Dow Jones Industrial Index (DJIA) succumbed to weakness within one month when stochastics exhibited bearish divergence. If history repeats itself in this cycle, then the quintessential question we must ask is: How long is this bear rally going to last?
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Factor time decay into trading strategies
Looking at the past three bear rallies (two in 2008 and one in 2007), the Dow Jones Industrial Index (DJIA) succumbed to weakness within one month when stochastics exhibited bearish divergence. If history repeats itself in this cycle, then the quintessential question we must ask is: How long is this bear rally going to last?
Bearish divergences have been detected in the DJIA and the S&P 500 last week; this is a classic pattern where stochastics establish lower highs while the index posts higher highs. If we are right, traders would be well advised to consider the time decay factor in their trading strategies as markets might reverse into their long-term bear trend in less than three weeks. The DJIA’s resistance is located at 8,800.
For the Singapore market, the Straits Times Index made an abrupt turnabout after hitting its support line at 1,685. Based on the STI’s current trajectory, we see upside caps at the 1,880 resistance level; the outlook is also consistent with the average 30 per cent gains posted by previous bear cycles.
Based on the Elliott Wave principles, the STI may commence Wave 5 of the downtrend if its index fails to break above 1,959. A break above 1,959 would however negate this downtrend wave count and confirm that the surge from 1,456 was in fact a Wave-1 uptrend. The latter scenario portends a bullish view for markets in the coming months.
By KEN TAI
Senior Technical Strategist
KELIVE RESEARCH
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