The Straits Times Index drifted continuously lower week-on-week, ending at 3,208 on May 12, down 58 points on the week. After a minor rebound, four black candles appeared during May 8-12. ADX drifted lower and broke below 15, an indication of a market that lacks a trend, and by the same token volatility. Yet, the STI is able to drift lower because the directional indicators are negatively placed.
Short term RSI is at the 30 line which represents an increasingly oversold stance, and after weeks of procrastinating, quarterly momentum has definitively broken below its equilibirum line. Concomitantly, the STI fell below its 200-day moving average at 3,239 that was attempting to act as a support. As a result, support is next at the mid-March closing lows of 3,129 and 3,130. It appears that RSI and quarterly momentum can move to lower levels before they are able to rebound.
In the meantime, risk-free rates are moving lower. The 10-year US Treasury yield moved below 3.40% on May 11 before rebounding to 3.41%. The chart of the 10-year yield shows it staying below its moving averages. Support/ breakdown stays at 3.40%. The 2-year Treasury yield has fallen below 4%, and is tracking lower at 3.93%. Interestingly, it did not rebound when the 10-year yield rebounded. Could the yield spread between 2- and 10-year Treasury yields narrow? Will the inversion right itself?
If such a trend materialises in the next 6-7 months, the US could escape a recession.
