Dow Jones Industrial Average (DJIA) (Downward Bias)

• The S&P 500 retreated from its late-March record high, finishing the week down by 3.0%, marking its third consecutive weekly decline. The NASDAQ saw a sharper drop of about 5.5%, whereas the DJIA eked out a slight gain of 0.01%. U.S. government bond yields climbed for the third week to 4.62% as investors’ expectations for near-term interest rate cuts were curtailed following comments by Fed Chair Powell, suggesting a delayed timeline for rate reductions.

• This week could be another volatile week for the markets, given the numerous upcoming catalysts. Positively, the sharp declines over the past two weeks have pushed the major indices into technically oversold territories in their respective daily charts, potentially setting the stage for a relief rally. However, factors like rising bond yields, ongoing Middle Eastern geopolitical tensions, and predominantly negative reactions to tech earnings may dampen investor sentiment. Key tech companies like Tesla, Meta, IBM, Microsoft, Alphabet, and Intel are set to report their latest financial results this week, which could influence market movements. Additionally, key economic indicators such as the 1Q GDP and the PCE price index will be released on Thursday and Friday, respectively, which could affect yields and, consequently, stock performance.

• Technically, the DJIA's weekly chart has displayed a Doji candlestick pattern, signalling market indecision after rebounding from its crucial 13-week SMA support at 37,643. Additionally, both the weekly stochastic and RSI indicators have pulled back from overbought levels but haven’t shown signs of recovery. This suggests continued volatility and a likely extension of the correction phase for the DJIA this week.

• In short, we're bracing for higher market volatility this week. A dips below its 13-week SMA at 37,643 could trigger a pullback to around 37,100. Key resistance levels to monitor are 38,569, which aligns with the 5-week SMA, and the recent peak of 39,868.

Source: Kenanga Research - 22 Apr 2024