STI: How low can it go?

With the Dow down 216.9 (-2.09%) at 10,172.98 and the S&P down 24.72 (-2.21%) at 1,091,76, it is likely that the bloodbath will continue next week in the Asian markets. Crude oil is down to US$74.23, that is down US$1.85 or 2.43%. Crude palm oil (CPO) on 22 Jan closed at RM2,455, down RM33 or 1.33%.

The flood of negative price action is psychologically daunting for investors and longer term traders alike. Investors are likely to wait for prices to go even lower before committing more capital while longer term traders are likely to wait for clearer signs as to whether the trend is still up or reversing before taking fresh positions. The one group that might benefit are the short term traders who might short the market as the chances of further downside is definitely greater.

Having said this, generally, the longer term uptrend is intact and investors would do well to hold on to their positions and ride out this rough patch. Of course, not all stocks are created equal, certain counters such as Healthway Medical are expected to be more resilient while certain counters such as Yanlord might sink much more.

In the last session, the STI gapped down and traded lower for most of the day but did a dramatic u-turn and closed higher, forming a white candle which looks promising. Promising because a possible reversal pattern which chartists call a "morning star" might appear if the index opens and closes higher in the next session. Confirmation is still required.

However, with the return of heightened volatility as could be seen in the widening of the Bollinger bands, a lack of buying momentum as could be seen in the rapidly declining MFI and the continuing distribution as could be seen in the declining OBV, it would be no wonder if buyers hold back in the next session, which could send the STI lower.

Now, the question is how much lower will the STI go if it does continue sinking? To answer this question, I have decided to draw three sets of Fibo lines for the STI's chart. For the visually challenged, please don't click on the chart. My eyes watered after a few minutes of looking at it.

From the three sets of Fibo lines, we can see where some of the Fibo lines are so close to each other that they overlap or almost do so. From these lines, I see strong supports at 2730-2740 and 2680-2700. Another 5% downside, it seems, cannot be ruled out from the last session's close of 2,819. Time to bring out the warchests? Maybe. May Lady Luck smile on us.

Healthway Medical: Strength

Healthway Medical's price action exhibited relative strength as it closed higher on a white candle day at 17.5c. This level is actually the XR adjusted level of the previous eventual target of 19.5c. All the more impressive. The new eventual target for the counter is 21.5c if 17.5c is taken out. Notice that the volumes on down days are actually lower than the volumes on up days for this week. That is a positive. The MACD has a buy signal today too.

The only negative I can spot is in the weekly chart which shows the MFI in overbought territory for the third week running. Conventional wisdom is that a counter cannot stay overbought forever but it can last quite long in extremely bullish cases.

I repurchased a chunk of Healthway Medical's shares at 16.5c and I would be quite happy to see it fly higher. If it sinks lower, I would carry on repurchasing as my current investment is only 40% of what it was originally before the counter ran up.