Confirming the signs

A host of negatives with Alcoa reporting a US$277 million loss, the U.S. Commerce Department reporting a deficit in international trade of goods and services which expanded 9.7% to US$36.40 billion and with China raising its banks’ reserve ratio to cool economic growth, sent markets lower.

After wondering aloud if we were seeing the beginnings of a correction last evening, the STI confirmed my suspicion this morning in a most sporting manner. If we look at the daily chart, sell signal on the MACD was spotted on 7 Jan. Candlesticks are detaching from the upper limits of the Bollinger bands as the MFI formed a lower high. Movement has a definite downward bias on a decline in buying momentum. With the MACD poised to do a bearish crossover, more downside cannot be ruled out.

The previous uptrend channel resistance for the STI should now provide support at 2,860 through early next week. If the index breaks this support, it would rejoin the channel. Having said this, with the 20dMA, 50dMA and 100dMA all rising and each within 70 points of each other, more or less. The outlook for STI's uptrend is still good. The correction will be a good opportunity to accumulate shares of good companies as prices move closer to supports.