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Why STI is Down Today?

1 December 2008

Introduction
Why STI is down when DOW and the US markets were up last Friday? This article will try to explain using very simple technical tools called simple moving average curves.


Why is Simple Moving Average ?
A Simple moving average is just an average value of a stock price, or indicator, averaging over a period of time. The term "moving" implies the average value will change or move. As the stock's price changes over time, its average price moves up or down.


Where Can I Watch Simple Moving Average Curve?
One can watch it from the any technical analysis software or free from Yahoo website. The latter only give Daily chart. Some private website, such as Shareinvestor.com , can provide intraday charts, such as 60-minute chart for a fee.

How Can I use Simple Moving Average Curves?
Most common curves being used are 200-day(200), 50-day(50) and 20-day (20) moving average(MA). The 5-day MA and 10-day MA are often used by Day Traders for day to day tradings. Among the curves, the 20 MA is most commonly used. It acts like a magnet that stock prices or indexes will always fall back after wondering away.

The MA curves are actually the supports as well as resistances of a stock price or index. For example, the 60-minute chart attached shows that STI has crossed over the 20 MA (green) and 50 MA(blue) and these lines becomes the support lines. STI is now testing the 200 MA (red) line, which is now the resistance line.

Apparently, STI just failed in the morning to break the 200 MA resistance line and index started to fall. It will fall towards the 50MA or 20 MA and wait. However from the chart, one can see that this is the 3rd time STI is testing the 200 MA line. It is always said that as more times a resistance or support is tested, it will break eventually. The rising 20 MA and 50 MA are at present supporting this action to break the 200 MA line.



Doubleclick for larger view

What Would Happened if STI Breaks the 200 MA?
200 MA is usually taken as an important support or resistance line as it always indicate the health of the index or stock price going ahead. If the 200 MA is broken, it would then become the support that will bring STI to new highs; otherwise, it would just remain as a resistance.

Can We See What Happened in the Daily Chart?
The 200 MA may reflect in the Daily Chart as an important support or resistance event. In this case as shown in the daily chart attached, STI is about to cross the 20-day MA (green). If the resistance of the 200 MA in the 60-minute chart is broken, it would mean that STI would be able to break the 20-day MA resistance in time to come.

The side-way movement of the 20-day MA in the Daily Chart indicates that STI has begun its recovery process. If the 20-day MA resistance is broken, STI would want to head for the next resistance, which will be the 50-day moving average. On the other hand, it might reverse to go down to meet the lower trendline of the triangle that had been enclosing it since Oct. STI will want to seek lower lows, lower than 1,600 if the lower trendline is broken.

Doubleclick for larger view



Disclaimer:
Information here is for sharing and learning. It is not intended to give any advice on any stock or movement or trend of any index. If a price or movment of a stock/index is given, it is only intended for illustration. The reader shall verify the information given here before using them.

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