The Straits Times Index clawed back some gains, ending the week of July 4-8 some 36 points higher week-on-week at 3,131. Despite the rebound, the STI remains below its nearest medium-term moving average, the 50-day moving average currently at 3,189. The 50-day moving average has crossed below the STI’s 100-day and 200-day moving averages.
During the next two weeks, the 100-day moving average is likely to cross below the 200-day moving average, currently at 3,227. The 100-day moving average - now at 3,264 - is falling at around 15 points a week, or 3 points a day. This cross is the archetypal dead cross.
Hence, despite index’s rebound in the week of July 4-8, it may not be the right time to turn more positive. The rebound that took place last week is a reaction to recessionary fears, which caused the 10-year bond market to rally. As a result, the yields on 10-year US treasuries retreated. This retreat, coupled with a rise in yields of shorter duration treasuries has caused something of an inverted yield curve. This inversion, where the 2-year treasuries yield is higher than the 10-year treasuries yield implies a recessionary phase.
Hopefully, this inversion is temporary. If it is consistent, that would confirm a recession and the STI could go a lot lower than 3,000.