Since Oct 2008, we have observed that the STI is supported at 1473 points and has started an upward movement till now. The confidence of STI’s upward movement may be attributed to the widely known Capricorn effect. Furthermore, Singapore’s 2009 Budget has been brought forward to 22^nd Jan this year. This has fueled speculations that the Singapore government may announce some positive news to boost the slowing economy.

In our last article, we observed that STI’s key support level was 1470 points level. The good news is, STI has stayed above this key support level since then. Otherwise if we break below this key support level, it may signify more downside for STI. In addition, we also marked the resistance level of STI to be at 1930 points. Indeed, the STI had failed to crack this resistance during the bullish start of the New Year. This has greatly disappointed investors as many were looking for the momentum to continue past Chinese New Year.

More evidence of weakness in this rally can be seen from the Money Flow Index (MFI) indicator. As STI trades towards the resistance, we had observed a bearish divergence on the MFI. This signifies that the current rally may be running out of strength and investors should be prudent in their trades. If the market trades in a side-way pattern, there will be great trading opportunities between the support level at 1470 points and the resistance level at 1930 points. Let us look at three index component stocks which may benefit from STI’s movement.