How To Trade Singapore's Stock Market In This Panic

Singapore's financial markets have been shaken in the past few weeks along with many other Asian and emerging markets. Interestingly, Singapore's rout began just days after I published my report about Singapore's bubble economy (I'm not saying that it was the reason for the decline).

In my last report, I focused on Singapore's economy itself, and in this piece, I will perform a basic technical analysis of Singapore's Straits Times (STI) stock index. The STI is currently trading at 3,027, which places it just above an important technical support zone located at approximately 3,000 to 3,020, as shown in the chart below. This support zone has marked the bottoms of several downward moves in the past year, which makes it an important psychological level. If this support zone is broken to the downside, another sharp bearish move is likely to occur. Conversely, there is a chance that a bounce will occur if the market is unable to break below this support.

Chart Source: Stockcharts.com

On a longer time scale, there is a possible chart formation that resembles a wedge pattern. If the lower support of the wedge (the support zone shown in the chart above) is broken, this formation is likely to become a bearish wedge variant, which could result in a decline to the lows reached in June 2012. Wedge patterns are often continuation patterns that lead to moves that are in the same direction that led into the pattern in the first place.

In recent months, the STI's 200-day moving average has gone from being in an uptrend to a downtrend, which means that the market's momentum is now biased toward the downside. In my experience, bearish market moves are much likelier when the 200-day moving average is in a downtrend versus in a neutral trend or uptrend.

A break below the STI's 3,000 to 3,020 support zone could present a good opportunity to enter a short position in expectation of further declines. If I entered a short position in this scenario, I would make sure to have a stop loss order to exit the trade if the STI manages to break back above its support zone, creating a 'bear trap.'

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