Dow Jones Industrial Average (DJIA)

• U.S. markets fell around 2% last week, marking their second consecutive weekly decline, as concerns over slower rate cuts arose following a stronger-than-expected December jobs report. The labor market added 256,000 jobs, with unemployment falling to 4.1% (from 4.2%), pushing the 10-year Treasury yield to a 14-month high of 4.79%. While Nvidia's upbeat keynote at CES highlighted the future of AI, a "sell on the news" reaction in chip stocks followed, exacerbated by CEO Jensen Huang's cautious remarks on quantum computing and news of potential new U.S. export restrictions on AI chips. A 10% drop in Bitcoin further dampened market sentiment.
• Looking ahead, elevated volatility is expected this week as markets focus on key inflation data - PPI on Tuesday and CPI on Wednesday - which could impact bond yields. Investors will also monitor Monday's Treasury budget and the unofficial start of the 4QCY24 earnings season, with major banks reporting on Wednesday. Should stronger economic or inflation data push yields higher, robust 4QCY24 earnings will be essential to sustain bullish sentiment. Additionally, market attention may shift to tariff-related developments as global leaders prepare for President Donald Trump's inauguration. The president-elect has previously proposed imposing a 60% duty on imports from China, Canada, and Mexico, and 10% tariffs on other nations, adding a layer of uncertainty. Sentiment may also be impacted by the unprecedented wildfires in Los Angeles, with economic losses potentially exceeding USD50b, according to CNBC.
• Technically, the DJIA closed below its 5-week and 13-week SMAs, indicating weakening near-term momentum, although the long-term uptrend remains intact. The breach of the uptrend channel's midline raises the probability of testing key support levels, while weekly stochastic and RSI indicators point to further consolidation potential.
• In short, we expect heightened market volatility this week, with a downward bias. Key support levels are at 41,211 (23.6% Fibonacci retracement) and 40,657, aligning with 50-week SMA, while resistance levels are at 42,255 (13-week SMA) and 42,995 (5-week SMA).

Source: Kenanga Research - 13 Jan 2025