The 75 basis points (bp) hike in its key Federal Funds Rate by the US Federal Reserve has led to central banks in other developed economies to turn hawkish. As a result, money is more expensive, and equities are likely to fall.
No surprise then that the Straits Times Index lost 83 points duriing the week of June 13-17 to close at 3,098. And, there could be lower levels ahead. In the past two weeks, then the STI has lost 130 points.
The chart pattern looks ominous. The two peaks (when the STI tested 3,440-3,442) in Feb and Apr this year have formed a double top. The neckline was at 3,160-3,165, a level that should have provided support, but gave way. As a result, the downside objective is likely to be below 2,900, indicating that the index may need to fall another 200 points before it starts to build a base.
The 50- and 100-day moving averages had made a negative cross at around 3,297. This is likely to continue to exert downward pressure on prices.
Quarterly momentum retreated from its equilbrium line and may take some weeks to reach a low. Only short term RSI is at the low end of its range. This may trigger a temporary rebound towards the middle of the week of June 20-24.
Short term traders may want to trade the rebound while investors may prefer to wait it out till the Fed has gone a bit further along its rate hike cycle before wading in.
