The Straits Times Index (STI) retreated by 50 points week-on-week to end the week of July 15-19 at 3,447. This level represents a minor support and the index may well be able to stop its decline soon. An earlier breakout indicated a target of 3,613 and this remains valid.
The target is achievable despite a negative divergence materialising between short-term RSI and the STI. Usually, during a strong uptrend, negative divergences by short-term RSI is likely to cause temporary corrections and consolidations.
During the uptrend, RSI is unlikly to move much below neutral levels, but is likely to rebound off the 50-point level.
US risk-free rates rebounded, with the 10-year Treasury yield rising to 4.2% on July 19 from 4.16% on July 17. The 10-year Treasury yield is likely to encounter some resistance as it moves towards 4.22% as this area looks like a breakdown level.
During a retreat in May and June, this area was tested thrice, but on the second test, prices stayed around this level for around 10 trading sessions before rebounding. Hence, a break below this level is meaningful.
The FTSE REIT Index ended the week of Jul 15-19 at 662. The breakout level was at 650, and the immediate resistance was at 670.
See also: STI steadies despite overbought US markets and rising US risk-free rates
An initial upside of 700 is indicated by the break above 650, and this remains valid.
Although the index retreated on July 19, quarterly momentum has just broken above its equilibrium line, a further signal that the breakout is likely to lead to a sustained upmove.
