Dow Jones Industrial Average (DJIA) (NEUTRAL)

• The stock market rally experienced a setback, with major indexes recording their first weekly losses since late October. Last week, the DJIA fell by 0.6%, while the S&P 500 and Nasdaq Composite dropped 1.5% and 3.3%, respectively, as new economic data intensified the debate about when the Fed will cut interest rates. Notably, leading stocks, particularly those that had rallied towards the end of 2023, faced significant losses as the new year began. With major indexes and key stocks hovering around crucial levels, even a slight market shift could significantly alter perceptions of the market's direction, regardless of the actual decisiveness of the movement.

• In the week ahead, the market anticipates fresh inflation insights with the Consumer Price Index (CPI) report due on Thursday. This data is expected to provide further clarity on the effectiveness of the Federal Reserve's efforts to control inflation. Additionally, corporate earnings will be in focus as major banks like Citi, Bank of America, Wells Fargo, and JPMorgan Chase are scheduled to release their financial results, offering valuable insights into the current state of the U.S. economy.

• From a technical perspective, the DJIA's sustained weekly uptrend may encounter resistance around the 38,046 point, which matches its 50% Fibonacci extension level. The current overbought condition of the stochastic indicator, coupled with the VIX volatility index hovering near to four-year low at 13.34 points, suggested that market optimism may have been priced in, hinting at the possibility of a market pullback.

• Key resistance levels for the DJIA are set at 38,042 and 40,265. Immediate support is seen at the previous high of 36,952, with additional support around 36,213, coinciding with the 5-week SMA.

Source: Kenanga Research - 8 Jan 2024