Any reprieve from the selling pressure is likely to be a temporary reaction to short term oversold lows of oscillators. Quarterly momentum is falling; directional movement indicators are unlikely to give hope. ADX is rising and the DIs are now negatively placed.
The Straits Times Index lost 66 points week-on-week to end at 3,139, and below the June low of 3,159. The break below 3,159 provides a measuring objective of 3,090. The index may head towards this level first before finding support, forming a minor positive divergence and gathering the impetus for a rebound.
Just as equity markets are weak - the Hang Seng Index may have further to fall than the STI - yields on 10-year US treasuries are at 4.0456%, the highest level since the start of the year. Unfortunately, the 50-, 100- and 200-day moving averages have bunched together and are moving apart as they rise, an indication of higher levels for the 10-year yield.
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 may retreat on strong overbought pressures but REIT Index may break out
Against a backdrop of rising risk-free rates, equity markets and their benchmark indices, including the STI are likely to remain pressured, debunking the chances of a summer rally.
