The Straits Times Index continued to languish somewhat. Week-on-week, the index lost 30 points to end at 3,094. Short-term RSI, which had corrected its oversold readings since early November, retreated from its equilibrium line. Although the STI managed to move above a resistance area at 3,150 on Nov 7-8, there wasn’t sufficient momentum for a breakout and the index has since fallen back. Support stays at 3,000 initially, and then at 2,970.
The S&P 500, on the other hand, has rallied by 10% since October 27, and is up 18% this year. The yield on the 10-year US treasuries ((UST10Y) has fallen from near 5% at the beginning of Nov to a tad below 4.5% currently. As at Nov 24, the UST10Y is at 4.4724. On Nov 23, the UST10Y rebounded off its rising 100-day moving average at 4.3507 on an intra-day basis.
Technically, it is a bit too early to say that the UST10Y has peaked. The chart pattern is beginning to look like a head-and-shoulder top formation but there is no confirmation as the yield has not broken below the neckline of the formation. In order to do that, the UST10Y needs to confirm a break below 4.35% based on the current chart pattern.
While it is difficult to gauge why the US markets are able to rebound, but the STI and the Hang Seng Index have had challenges moving higher, it maybe that the US earnings season was not a disappointment.
On the other hand, China - and by the same token - stocks in the Hong Kong market have faced challenges especially in the property sector. This is evidenced by the increased provisions that banks such as HSBC and Standard Chartered have announced for their mainland property exposures.
It is likely that the local market is likely to start a rally in December. The STI often faces a Capricorn effect where prices strengthen between Christmas and Chinese New Year. During this period, the STI may well attempt to move above its resistance area that is now established between 3,150 and 3,177.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
