We are all living and investing in the shadow of the US Federal Reserve, whose chairman is focused on defeating inflation. including our own Straits Times Index.
The STI fell fell by 67 points to 3,231 during the week of Sept 19-23. Although the decline was modest, and the index is hovering a little below the 50- and 200-day moving averages at 3,233 and 3,244 respectively, a rebound would be tough at this point. Resistance has been established at 3,300, and psychological support is at 3,200 for now.
The saving grace is the directional movement indicators, which are pointing to a period of low volatility. ADX, which is currently at 13, is likely to fall further. The lower the level of ADX the less the market trends strongly. The DIs are neutral but appear poised to turn negative. Hence, even if prices fall, the decline is likely to be gradual rather than sharp.
Quarterly momentum has turned down; short-term RSI has fallen below its equilibrium line. All these could add some downward pressure to the STI.
In the meantime, the yield on 10-year US treasuries at 3.73%, is at the highest level since the global financial crisis. In addition, its ADX is rising, and its DIs are positively placed, indicating higher levels ahead.
On the other hand, the yield on the 2-year US treasuries is at 4.19%. This so-called inverted yield curve has persisted for some months, which economists believe is an ominous sign.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
Investors should perhaps keep their powder dry for when these yields peak and turn down - which may not materialise for another 2-3 months.
Alternatively, investors looking for short-term yield plays could opt for the Monetary Authority of Singapore’s (MAS) 6-month T-bills which were last issued at 3.32% on Sept 20 this year. The next auction is on Sept 29.
