Correction to Prevail on US Tech Earnings Watch

The local market extended profit-taking correction Thursday, along with heavy falls in the region following the sharp overnight Wall Street drop as weaker-than-expected US tech earnings dampened sentiment. The FBM KLCI slipped another 5.96 points to close at 1,615.18, off an early low of 1,610.58 and high of 1,618, as losers swarmed gainers 954 to 255 on total trade of 4.55bn shares worth RM3.11bn.

Supports at 1,614/1,606; Resistance at 1,638/1,640

The recent profit-taking correction should prevail as investors closely monitor earnings from more key US technology names and revise their expectations ahead of the weekend. Immediate index supports remain at 1,614, 1,606 and 1,582, the respective 30-day, 50-day and 100-day moving average levels, while immediate resistance will be the recent high of 1,638, with 1,640 and 1,660 as tougher upside hurdles.

Bargain Axiata & CelcomDigi

Any further weakness on Axiata towards the 23.6%FR (RM2.36) would aggravate oversold conditions and spark technical rebound ahead, with immediate upside hurdles seen at the 50%FR (RM2.60) and 61.8%FR (RM2.70), and strong support from the 31/10/23 low (RM2.12). CelcomDigi will need to overcome key resistance from the 61.8%FR (RM3.88) and 76.4%FR (RM4.08) to enhance upside momentum, with major hurdle seen from the 30/5/23 high (RM4.42), and key chart supports at the lower Bollinger band (RM3.49) and 23.6%FR (RM3.34).

Asian Markets Tumble on Tech Worries

Shares tumbled in Asia on Thursday, as a rotation out of mega cap growth stocks that has powered the bull market this year dampened risk appetite. In Wall Street trading session overnight saw intense declines for the S&P 500 and the Nasdaq Composite, driven by disappointing quarterly reports from Alphabet and Tesla. This led other heavyweight tech stocks and artificial intelligence darlings like Nvidia and Microsoft to fall in sympathy. The rout comes two weeks after a cooler-than-expected inflation reading set off a massive rotation from tech winners into companies that would benefit most from Federal Reserve rate cuts, primarily small capitalization stocks. On economic news, South Korea's economy unexpectedly shrank in the second quarter, clocking the sharpest contraction since 2022 as slumping consumer spending undermined an export boom, reinforcing expectations that an interest rate cut could be imminent.

Traders also have their eye on second-quarter U.S. growth figures on late Thursday, though the outcome is unlikely to significantly alter bets for Federal Reserve rate cuts this year, with a September move already fully priced in. Japan’s Nikkei 225 marked its seventh straight day of losses to plunge 3.28%, leading declines among Asian indexes as the region saw a broad sell-off after Wall Street tumbled overnight. Nikkei closed at 37,869.51, its lowest since April. South Korea’s Kospi lost 1.74% to end at 2,710.65, while the Kosdaq was down 2.08% to end at 797.29. The index was dragged down by heavyweight SK Hynix, which fell 8.87%. Hong Kong Hang Seng index was down 1.7%, while mainland China’s CSI 300 fell 0.55% to 3,399.27. Australia’s S&P/ASX 200 dropped 1.29% to 7,861.2.

Wall Street Mixed as Traders Dump Tech Stocks

Wall Street's main indexes finished mixed overnight as traders continued to dump some of 2024′s leading technology stocks and remained cautious ahead of Friday's inflation update. The S&P 500 declined 0.51% to finish at 5,399.22, while the Nasdaq Composite dropped 0.93% to settle at 17,181.72. The Dow Jones Industrial Average outperformed, rising 0.20% to close at 39,935.07. Stocks are running into a wall as traders start to question when tech companies' huge investments in AI will start to pay off. Unimpressive earnings from Alphabet and Tesla earlier in the week have dented hopes that Big Techs can live up to their AI-fueled sky-high valuations. Traders ditched tech for a second day. Nvidia lost 1.7%, while Advanced Micro Devices shed more than 4%. Meta Platforms fell 1.7% and Microsoft slumped 2.5%.

The Dow Jones Industrial Average hung onto its gains to close higher, after stronger-thanexpected GDP data provided support, and small-cap stocks also rose as traders sought out value away from the mega caps. The second-quarter GDP report showed the economy grew 2.8%, much more than expected. Economists surveyed by Dow Jones had anticipated growth of 2.1%. The relatively cautious tone also comes as Wall Street braces for an inflation update on Friday, as well as next week's Federal Reserve policy meeting. Ford Motor shares tumbled 18.4% for their worst day since 2008 after second-quarter earnings came in much lower than analysts expected.

Source: TA Research - 26 Jul 2024