Despite short term oversold readings for the Straits Times Index, it closed at 3,061 on October 27, down 15 points week-on-week. The immense selling pressure of mid-October appears to have abated. Although volume is relatively high compared to levels seen in September, volume has also eased week-on-week as the STI drifted lower.
While main support remains at 2,970, the index could attempt the beginnings of a base formation around 3,051, the low on October 23. Short term RSI has yet to form a positive divergence, and quarterly momentum is some way from bottoming. On the other hand, the negative reading of around 38 by ADX against a background of negatively placed DIs suggest that the negativity around this indicator may have peaked.
In the meantime, the STI is likely to remain rangebound with 2,970 as the low point, and resistance appearing at the breakdown level of 3,140 to 3,150.
Risk-free rates remain stubbornly high. The 10-year US treasury yield (UST10Y) has come off from near 5% which has turned out to be a resistance of sorts. However UST10Y continues to fluctuate in the 4.84% to 4.93% range which is at the high end of a 15 year range. Although a minor negative divergence has started to develop between quarterly momentum and UST10Y, and ADX has flattened at 48, which is an overextended range, UST10Y is unlikely to move much lower from 4.8%. On the other hand, the risk-free rate may have difficulty breaking above 5% as indicators are overstretched and peaking.
In sum, markets are likely to remain skittish, with current oversold readings for Nasdaq and S&P 500 limiting their downside, but uncertainty and poor sentiment limiting their rebounds.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
