Despite Dragon surge, STI's CNY rally has legs to go further

The Straits Times Index's auspicious start to the Dragon year has an upside of 3,330, short term retreats notwithstanding

Purely from a technical perspective, the Chinese New Year rally, although somewhat spectacular since the start of the Dragon year, should have the legs to go further.

The Straits Times Index, which rallied to 3,221 in the week of Feb 13-16, is within reach of a resistance area at 3,240-3,250. When it reaches this area, there may be a temporary pause. However, since quarterly and annual momentum are in rising mode, directional movement, ADX and the DIs are positively placed, and short term RSI is not yet overbought, further gains are possible.

The 200-day moving average, currently at 3,184, has been clearly breached, and should provide some minor support on a retreat. The only negative or cautious indicator is this moving average, which has yet to turn up.

The break above 3,150 in early January indicated an upside of 3,330 and this remains valid.

As a caveat, while indicators are positive, and the Dragon is off to an auspicious start, markets can always change their mind.

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