Dow Jones Industrial Average (DJIA) (Downward Bias)

• For the second consecutive week, both the DJIA and S&P 500 fell from their late-March highs, dropping 2.37% and 1.56% respectively, while the NASDAQ's decline was less pronounced at 0.45%. Unexpectedly high inflation data and the Federal Reserve's March meeting minutes suggested rate cuts are not imminent, leading to expectations of prolonged high interest rates. Mixed results from three major U.S. banks also reflected a broader earnings decline for S&P 500 banks, anticipated at 18% YoY drop for the 1Q, according to FactSet. Additionally, after Wednesday's inflation report, the 10-year U.S. Treasury bond yield hit a five-month high of 4.59%, significantly up from 3.86% on February 1.

• We anticipate the market pullback to persist this week. Investors are showing concern as the DJIA has dropped below its 5- week Simple Moving Average (SMA) for the first time since November, and the VIX has risen above 18.00, marking a first since that time as well. Factors such as soaring commodity prices and renewed inflation fears are creating uncertainty about consumer purchasing power and the direction of monetary policy. Additionally, the escalating conflict between Iran and Israel is expected to continue impacting market performance this week. Key events to watch include Monday's retail sales data and Wednesday's Fed beige book. Corporate earnings from major firms like Goldman Sachs, Johnson & Johnson, Bank of America, Morgan Stanley, Netflix, TSM, Procter & Gamble, and American Express are also due this week.

• Technically, the DJIA broke significantly below its 5-week SMA last week, indicating a possible continued decline, perhaps even falling below its 13-week SMA at 37,615 due to rising treasury yields. Despite this downward trend, we anticipate bargain hunting to occur, likely stabilizing the index and enabling it to close near this critical level by the end of the week.

• In short, we're bracing for higher market volatility this week. A dips below its 13-week SMA at 37,615 could trigger a pullback to around 37,100. Key resistance levels to monitor are 38,715, which aligns with the 5-week SMA, and the recent peak of 39,868.

Source: Kenanga Research - 15 Apr 2024