Dow Jones Industrial Average (DJIA)

• Stocks posted strong gains last week, fuelled by positive inflation and growth news, raising hopes for a "soft landing" for the economy. The NASDAQ surged over 5%, the S&P 500 gained 4%, and the DJIA rose 3%. The tech sector's 7.6% average gain was a key factor in the NASDAQ's outperformance. By week’s end, analysts estimated S&P 500 earnings grew 10.9% YoY in 2Q, up from 8.9% two weeks ago, marking the fastest pace since late 2021, according to FactSet.

• Moving ahead, the strong rally in stocks over the past two weeks suggests that markets are shifting from growth concerns toward a "soft landing" outlook. While bullish momentum is expected to continue, supported by technical analysis and a likely dovish tone from Fed Chair Powell at Jackson Hole on Friday, some consolidation may occur during the week. Despite this, the DJIA is still anticipated to post another weekly gain. On the corporate earnings front, among 476 companies reporting earnings this week, 14 are S&P 500 companies, including Snowflake, Lowe’s, Estee Lauder, and Target Corp.

• Technically, the DJIA's continued recovery last week has kept it firmly above the 5-week SMA, suggesting that the short-term uptrend remains intact. The medium-term uptrend is also set to continue as long as the index stays above the 13-week SMA. Despite the strong market recovery over the past two weeks, the weekly Stochastic and RSI have not entered into the overbought territory, indicating room for further gains. On the daily chart, a point gap between 40,068 and 40,563 near the 5- day SMA suggests a higher chance of closing if consolidation occurs this week.

• Overall, we remain positive-bias on the market this week. Immediate resistance levels are at its all-time high of 41,376, followed by 43,406. On the downside, immediate support levels are at 40,259, followed by 39,849, which coincides with the 5-week SMA.

Source: Kenanga Research - 19 Aug 2024