The Straits Times Index gained 23 points to end the week of May 13-17 at 3,313. Despite the gain, the feeling all round was the market was moving sideways as gains were confined to a relatively narrow segment of the market. Nonetheless, the STI is likely to meet with its upside of around 3,360 following the break above 3,250.
For the local market and the STI in particular, the good news is that both medium- and long-term momentum indicators are intact, as are the moving averages. The rising 50-day moving average is currently at 3,231 and rising at around 3 points a day. Hence, it is fairly distant from the level of the index. As a result, the STI’s movements are likely to be gradually upwards, with upmoves punctuated by retreats.
The more sombre observation is that the STI’s volume has contracted. This may have to do with market-watchers staying on the sidelines, as they observe liquidity in the local market gradually shrinking.
Interestingly, yields on 10-year US treasuries, which is the risk-free rate, appears to have moved below a head-and-shoulders like top formation with the neckline at 4.57%. This level has been breached on the downside as the 10-year yield is at 4.386%, and below the 50-day moving average support level of 4.42%. There is support at the 4.2% to 4.22% range, and the 10-year yield is unlikely to move much below this level for the rest of the current month.
If so, the sell-in-May adage continues to hold water given the correction and temporary bounce in the S&P500. This does not preclude a summer rally as the 10-year yield could hang around 4.2% level for the next 2-3 weeks. Depending on the state of indicators by then — and they may have weakened — the 10-year yield could be in a position to move lower.
