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Dow Jones, Hang Seng, Nikkei 225 Outlook: Will the Rally Carry on?

Dow Jones, Hang Seng, Nikkei 225 Outlook: Will the Rally Carry on?

Margaret Yang, CFA, Former Strategist

DOW JONES, HANG SENG, NIKKEI 225, ASIA-PACIFIC MARKET OUTLOOK:

  • Dow Jones futures edged lower after registering a small loss on Monday
  • Reflation trade appears to have taken a pause as markets anticipate new fiscal stimulus to come in mid-March
  • The Hang Seng Index surged 2.4% and scrapped the 30,000 mark, reaching a fresh 20-month high
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Fiscal stimulus, Earnings, Southbound flow to HK, Asia-Pacific Stocks Outlook:

US markets were mixed overnight with healthcare (+0.76%), consumer staples (+0.74%) and information technology (+0.55%) sectors outperforming. The Dow Jones Industrial Average underperformed the S&P 500 and Nasdaq 100 indices, reflecting a cooling appetite for reflation trades as investors returned to tech and staples seeking for certainty. Senate Majority leader Chuck Schumer said that he is aiming to pass the new fiscal stimulus plan by mid-March, which may have disappointed investors who had anticipated a shorter timeline.

US earnings continued to fare well, with 71 out of 86, or 82% S&P 500 companies delivering positive surprises so far this season. Looking ahead, Johnson & Johnson, UBS, 3M, Hyndai, GE, American Express, Microsoft, AMD are among the key companies to reveal results today (table at the end). Read more on my earnings outlook report.

Dow Jones Sector Performance 26-01-2021

Source: Bloomberg, DailyFX

The DXY US Dollar index rebounded to 90.30 to test the 50-Day Simple Moving Average (SMA) line, which may serve as an immediate resistance level. The US 10-year Treasury yield fell to 1.03% from 1.08% a day ago, reflecting rising demand for safety and lowered reflation expectations. This may set a sour tone for Asia-Pacific equities after a strong trading session on Monday.

The Hang Seng Index (HSI) surged 2.4% on Monday and closed above the 30,000 mark for the first time since May 2019. The rally was led by technology companies including Tencent (+10.9%), Meituan (+5.2%) and Alibaba (+2.95%) as southbound inflow from mainland investors ramped up.

Hang Seng Top 10 Stocks Performance 26-01-2021

Source: Bloomberg, DailyFX

The HSI registered a whopping 13.8% year-to-date gain, propelled by substantial amount of southbound inflow via the Hong Kong-Shanghai and Hong Kong-Shenzhen stock connections. Some HK$ 19.25 billion of net southbound inflow were observed on Monday, more than doubled from HK$ 9.36 billion seen on last Friday. Total southbound flows contributed to around 30% HKEX's daily turnover recently.

Hang Seng Index vs. Daily Southbound Net Flow – 12 Months

Source: Bloomberg, DailyFX

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Dow Jones Index Technical Analysis:

Technically, the Dow Jones index extended its upward trajectory within an “Ascending Channel” as highlighted in the chart below. The bull trend is well-supported by its 20-Day Simple Moving Average (SMA), which serves as an immediate support level. A breaking down of the 20-Day SMA may signal a short-term trend reversal. Support and resistance levels can be found at 30,430 (50-Day SMA) and 31,460 (upper Bollinger Band) respectively.

Dow Jones IndexDaily Chart

Hang Seng Index Technical Analysis:

The Hang Seng index is riding a strong trend with an attempt to breach the 127.2% Fibonacci extension level at 29,870. Breaching this level may open the door for further upside potential with an eye on 30,930 – the 161.8% Fibonacci extension. The MACD indicator has shown sign of weakness however, which may suggest that the index is temporarily overbought and due for a correction.

Hang Seng Index Daily Chart

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index hit the 100% Fibonacci extension level of 28,770 and has retraced slightly since. The overall trend remains bullish as highlighted in the two “Ascending Channels” below. A bearish MACD crossover reflects faltering bullish momentum and may hint at short-term pressure. Immediate support and resistance levels can be found at 27,980 (76.4% Fibonacci extension) and 28,770 (100% Fibonacci extension) respectively.

Nikkei 225 Index Daily Chart

S&P 500 Earnings Calendar 22-26th January 2021

NameDateActualEstimateSurprise
New Oriental Education & Techn22/1/20210.43 0.341 26.10
Regions Financial Corp22/1/20210.61 0.419 45.60
Schlumberger NV22/1/20210.22 0.175 25.70
Huntington Bancshares Inc/OH22/1/20210.27 0.293 (7.80)
Ally Financial Inc22/1/20211.60 1.066 50.10
Kansas City Southern22/1/20211.89 1.925 (1.80)
Reliance Industries Ltd22/1/202120.33 18.176 11.90
Nidec Corp25/1/202159.50 54.863 8.50
Koninklijke Philips NV25/1/20211.98 1.983 (0.20)
Kimberly-Clark Corp25/1/20211.69 1.616 4.60
Johnson & Johnson26/1/20211.825
Novartis AG26/1/20215.798
DR Horton Inc26/1/20211.707
UBS Group AG26/1/20211.49
3M Co26/1/20212.154
Raytheon Technologies Corp26/1/20210.695
Freeport-McMoRan Inc26/1/20210.371
Alaska Air Group Inc26/1/2021(2.894)
PACCAR Inc26/1/20211.206
NextEra Energy Inc26/1/20210.397
NextEra Energy Partners LP26/1/20210.532
Rockwell Automation Inc26/1/20211.891
Prologis Inc26/1/20210.923
Lockheed Martin Corp26/1/20216.416
Archer-Daniels-Midland Co26/1/20211.077
Hyundai Motor Co26/1/20217,352.462
General Electric Co26/1/20210.092
Xerox Holdings Corp26/1/20210.628
American Express Co26/1/20211.287
Verizon Communications Inc26/1/20211.168
Invesco Ltd26/1/20210.568
Advanced Micro Devices Inc26/1/20210.468
Maxim Integrated Products Inc26/1/20210.677
Varian Medical Systems Inc26/1/20211.03
W R Berkley Corp26/1/20210.784
CH Robinson Worldwide Inc26/1/20210.968
F5 Networks Inc26/1/20212.442
LVMH Moet Hennessy Louis Vuitt26/1/20218.009
Microsoft Corp26/1/20211.635
Starbucks Corp26/1/20210.554
Boston Properties Inc26/1/20211.587
Texas Instruments Inc26/1/20211.332
Capital One Financial Corp26/1/20212.94

--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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