Dow Jones Industrial Average (DJIA)

• Markets sold off last week following soft employment data and renewed growth concerns. Key indices saw some of the steepest declines in over a year, with the NASDAQ down nearly 6%, the S&P 500 off more than 4%, and the DJIA dropping almost 3%. Other signals pointing to a potential growth slowdown include oil hitting a fresh 52-week low, dropping below key support at USD70, U.S. Treasury yields (both two-year and 10-year) reaching new lows, and Bitcoin, often seen as a risk appetite proxy, down ~10% to a six-month low. Additionally, the yen has strengthened to YTD highs, surpassing the August 5th peak, raising questions about whether there is still positioning in the yen "carry trade" that needs to be unwound.

• Looking ahead, Apple will unveil its iPhone 16 on Monday, likely emphasizing AI enhancements. Key inflation data, including the CPI on Wednesday and PPI on Thursday, is also due, though market attention has shifted from inflation to growth concerns. Given that September is historically prone to pullbacks and the VIX remains relatively low at 22, we expect volatility to stay elevated throughout the week.

• Technically, the DJIA closed slightly below its 5-week SMA last Friday, suggesting a near-term pullback may be imminent, although the medium-to-long-term upward trend remains intact. The weekly stochastic indicator remains in overbought territory despite last week's pullback. On the daily chart, the index has broken below two key SMAs (5 and 13-day) during the week, with stochastic indicators falling below overbought levels, indicating room for further correction and reinforcing our near-term bearish outlook.

• All in, we expect market volatility to elevate with continued mean reversion this week. Immediate support levels are identified at 40,200, followed by a crucial 39,505, which aligns with the 13-week SMA. On the upside, key resistance levels to watch are at 41,585, followed by 42,429. 

Source: Kenanga Research - 9 Sept 2024