The Straits Times Index rose by 67 points in the week of Oct 14-18 to end at 3,640, the highest level since the global financial crisis. If the STI is able to clear 3,600 definitively, a significantly higher new upside target would be indicated based on a measuring objective. In this event, the new support is likely to be at 3,570.
Indicators are “on-side”. Quarterly momentum is rising, directional movement indicators are supportive and long-term momentum indicators are also rising.
In the near term, short-term indicators are rising, but not overextended yet, suggesting that the STI could continue to gain ground. The overbought-resistance level for smoothed short-term RSI is at 82 to 83.
The yield curve has normalised. Although the 10-year US treasury yield continues to hover around 4.08% to 4.09%, the 2-year US treasury yield is at 3.95% while the 30-year treasury yield is at 4.38% suggesting that the probability of a recession may have abated. The yield curve was inverted for more than two years.
The US markets — as represented by the Dow Jones Industrial Average (DJIA), the S&P 500 and the Nasdaq — all made new highs during the week of Oct 14-18. Some rotation is evident, and this is a feature of bull markets. If this materialises, declines of 300-400 points by the DJIA would not be out of place.
At any rate, as we head into the earnings season, the US market may well turn skittish depending on how the results pan out. A bigger threat hanging over the US market is the US presidential election.
See also: STI steadies despite overbought US markets and rising US risk-free rates
Locally, the REITs have kicked off the reporting season. The highlight is likely to be on Nov 7 and 8, when the local banks will report their 3QFY2024 earnings.
REITs have already recovered despite their distributions being pressured by higher debt costs this year. This trend of higher debt costs may continue till at least 1Q2025 and most probaby to 2Q2025 before the higher costs drop off. On the other hand, investors may be looking at asset values to trade undervalued REITs.
