In our report “Time for a Pause” dated 8 June, we stated the FSSTI was likely to correct after meeting resistance at the 38% retracement level at near 2400. We also said the index was extremely overbought.
We have now seen the pullback, not just for the FSSTI but also for the Hang Seng Index, which we had also highlighted. Both indices show corrective structures- patterns that indicate that the move is a regular pullback and not a trend reversal. We also believe that Thursday*s price action marked the tail-end of the correction for both indices or the first leg of the corrective structure.
The attached chart shows the FSSTI correcting towards the apex of a prior wave iv move in a 3-legged zigzag structure. We believe the support will hold at between 2190 and 2237. If the FSSTI rises past 2260, there is scope for a minimum 62% retracement of the pullback. We had recommended investors take profit on some stocks such as City Dev, Wing Tai, Straits Asia Resources, SGX and First Resources. We recommend a re-entry on these stocks.
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