There is plenty to be nervous about, but it is unlikely to be the debt ceiling - or as we found out on the last day of Sept - the US government shutting down. The US government remains open. However, the messaging of tapering - where the US Federal Reserve tapers its bond buying programme - is causing the 10-year US treasury yields to rise, and the US dollar to firm. The Dollar Index is now at a one year high. The decline in dollar liquidity - albeit slight - is likely to cause local interest rates to firm. The problems in China around China Evergrande Group, a fuel shortage, and a decline in economic activity is a separate issue.
Although the Straits Times Index fell 10 points during the week - which sounds modest - it fluctuated a bit, moving above 3,090, before ending on Oct 1 at 3,051. This takes the STI below its 200-day moving average currently at 3,078. Since this took place on a Friday, before a weekend, it’s a negative move. In addition, the 50- and 100-day moving averages have turned down; ADX is turning up after a temporary reprieve; the DIs are negatively placed. The next immediate support appears at 3,000 which is a psychological roundophilic number, but this is unlikely to hold. All in expect a couple of volatile months before the Capricorn effect sets in, in Dec.
The Hang Seng Index held above the low of 23,971 made on Sept 20. However, it has clearly breached the support at area at 24,581 to 24,748, indicating a downside of 23,512. The HSI broke below its 200-day moving average in early-July which in turn is turning down, albeit glacially. To-date no positive divergences have materialised between quarterly momentum and the index. Hence apart from temporary rebounds, lower levels are likely. The HSI would need to move above 25,000 to convince traders that strength could return and the probability - although not impossible- appears low currently.
