The market - as represented by the Straits Times Index - does not look good. Although the index rose around 14 points week-on-week to end at 3,205, the last two trading sessions caused the formation of two black candles. This happens when prices end the session lower than the open. In addition, the black candles have shaven tops and bottoms which implies the sessions opened at the high and closed at the low, for two consecutive days.
On June 30, the last trading day of 1H2023, the black candle was accompanied by a surge of volume. As this took place, because the close was little changed, short term RSI remains at neutral levels.
In sum, the candlestick chart pattern is negative, and this is confirmed by short term RSI is at its equilibirium line indicating it has the potential to fall.
The only saving grace is the low level of ADX. It is falling and is now at 14. As such, the STI can fall, but the downside could remain limited to 3,159, which was the low made mid-month.
Unfortunately, yields on 10-year US treasuries is rising, and confirmed by its rising ADX. The 50-, 100- and 200-day moving averages are coalescing around 3.6285% while the 10-year yield is at 3.87%. There is every likelihood that the 10-year yield tests 4% before retreating.
Rising risk-free rates are usually not positive for equity markets as they automatically raise the weighted average cost of capital, causing prices to fall.
See also: STI’s upside from breakout remains valid as risk-free rates fade, but stay watchful for FOMC
