The sharp decline since Aug 8 has caused 21-day RSI to dip to 30, the lowest level on the daily chart for three years.
Quarterly momentum is in sharp retreat after a negative divergence. During the week of Aug 18-22, 21-day RSI is likely to rebound causing the decline to be arrested. Any price rebound at this stage may be tepid.
DBS’s quarterly momentum and 21-day RSI also display clear negative divergences. However, no breakdown has materialised yet.
See also: REIT Index points to upside as STI continues consolidation
Against this, DBS’s retreat may be relatively mild. Initial support is at $49, which can be expected to be breached. The rising 50-day moving average at $46.68 provides the next meaningful support.
If DBS’s prices decline to the 50-day moving average, the Straits Times Index (STI) is likely to move towards 4,153, the bottom of a minor double top.
A break below 4,153 indicates a secondary downside of 4,024, a tad above the price and psychological support at 4,000.
See also: STI's consolidation is likely to persist; Sembcorp's decline should find support at $6.17
Since the STI is in corrective mode, a move towards 4,000 should be expected.
Meanwhile, STE’s chart pattern and indicators look weak, but prices have stayed resilient this week.
Quarterly momentum and 21-day RSI are in sync as both have made clear negative divergences and appear poised for breakdowns.
Fundamentally, three analysts have downgraded STE since its results announcement on Aug 14, taking the "holds" to seven with the "buys" at six.
Macquarie, the latest house to downgrade STE, has a price target of $7.28. This is near the technical support level.
At the July FOMC press conference, Fed Chair Jerome Powell delivered hawkish comments and suggested that the FOMC was in no rush to adjust rates. Since then, Fed communications suggest that the FOMC voters remain divided even after downward revisions to the employment estimates.
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Following comments from FOMC speakers and Treasury Secretary Bessent on Aug 13, markets were pricing in at least a 25 basis point (bp) rate cut at the September meeting and more than two cuts before the end of 2025.
In an Aug 15 update, Barclays Research bends towards Powell for its outlook. “In our view, the incoming data, including the latest employment report, do not warrant much change to Powell's recent hawkish stance, and we see no indication that the hawkish FOMC members are changing their tune. While we think the odds have risen, we view market participants as excessively confident in a September cut.
“We see the September FOMC decision as a close call, but we retain our call for a single 25bp cut this year, in December, as we await more guidance from FOMC speakers at Jackson Hole next week to reassess the risks of an earlier cut. A reiteration of Powell's earlier comments would likely reduce expectations of a September cut, while a new emphasis on a weakening labour market would likely cement expectations for one.”
Despite the uncertainty over cuts in the Federal Funds Rate, 3-month Sora has fallen to 1.7395% as of Aug 15 compared to 3% on Jan 2.
Local risk-free rates have fallen to levels not seen since January 2022. The 10-year yield on Singapore Government Securities as of Aug 15 was 1.88% compared to the US risk-free rate of 4.29%.
