Missile launch depresses market

AFTER a week's break from missile test on Sept 3, North Korea did it again - it tested an intermediate range ballistic missile that flew over Japan on Sept 15, causing the general market to remain depressed especially the Straits Times Index (STI).

The bullish momentum in the STI began accelerating since the start of 2017 after the index broke above the 2,964 resistance area. Since then, the bullish momentum raged on until recently in July when some weakness appeared. The confluence of 78.6 per cent Fibonacci retracement level and 3,357 resistance area seemed to be causing some obstacle for the bulls as the STI failed to break above it. Moreover, the rally since the start of the year has resulted in the Relative Strength Index (RSI) entering into overbought territory in July, implying a high possibility of a deeper correction.

RSI provides a reliable signal to spot for a reversal point when it is at either extreme. An RSI reading above 70 shows overbought conditions where a reversal to the downside is expected, while an RSI reading below 30 highlights oversold conditions where a reversal to the upside is expected.