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DOW JONES, HANG SENG, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 indexes closed +0.13%, -0.05% and -0.23% respectively
  • US ISM Manufacturing PMI rose to 61.2 in May, compared to a baseline forecast of 60.9
  • Asia-Pacific markets are positioned for a mixed open. The HSI is testing a key chart resistance

Small-cap Rally, US Data, OPEC+, Hang Seng Index, Asia-Pacific Outlook:

The small-cap-centric Russell 2000 index rose 1.14% overnight, outperforming large-cap indices. This suggested that investors were probably rotating out from blue chips and into small- to mid-cap stocks amid inflation concerns. Rising retail speculative activity may signal an overheated market condition.

Stock prices of AMC entertainment and GameStop rallied 22.66% and 12.17% respectively, largely driven by a renewed wave of speculative activity by Reddit day traders. The so called “short squeeze” strategy in play here aims to force call option writers and short sellers to cover their losses by purchasing back the stocks from the open market, sending prices even higher.

The Dow Jones index closed modestly higher on Tuesday, buoyed by a stronger-than-expected ISM manufacturing PMI data that underscores economic strength. The reading came in at 61.2, exceeding a baseline forecast of 60.9 and also marking the twelfth consecutive month of expansion. Demand, consumption and inputs registered strong growth compared to April, with supply shortage and labor constrains pointing to further rise in price levels.

Strong economic readings buoyed reflation optimism, sending the 10-year Treasury yields higher to 1.615% – a one week high. Materials and energy sectors outperformed, while the technology sector suffered a mild pullback. WTI crude oil prices surged 1.5% to a fresh two-and-half year high of $ 67.90 as the OPEC+ painted a bright outlook for energy demand and stayed on course to gradually roll back production cuts. Higher oil prices may support energy, oil & gas as well as offshore marine sectors.

US ISM Manufacturing PMI – 3 Years

Source: ismworld.org

Asia-Pacific markets are positioned for a mixed start on Wednesday. Futures in Japan, Hong Kong, Taiwan, Singapore are in the red, whereas those in mainland China, Australia, South Korea, Malaysia, India and Thailand are in the green.

Hong Kong’s Hang Seng Index climbed over 1% yesterday, lifted the technology sector. Data shows southbound net inflow via the stock connection surged to HKD 5,295 million on June 1st as risk appetite of mainland investors revitalized. This could signal further price strength as the stock connections account for nearly a quarter of the entire trading volume on the HK stock exchange.

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

Source: Bloomberg, DailyFX

Looking back to Tuesday’s close, 5 out of 9 Dow Jones sectors ended higher, with 43.3% of the index’s constituents closing in the green. Materials (+2.91%), energy (+2.76%) and financials (+1.99%) outperformed, whereas healthcare (-1.56%) and consumer discretionary (-0.75%) trailed behind.

Dow Jones Sector Performance 01-06-2021

Source: Bloomberg, DailyFX

Dow Jones Index Technical Analysis

The Dow Jones index is challenging the 200% Fibonacci extension level (34,920) for a second time. A successful attempt may open the door for further upside potential, whereas a failed one may result in a bearish “Double Top” pattern. Prices remain within an “Ascending Channel” formed since early November, the ceiling and the floor of which serve as key support and resistance levels respectively. Bearish MACD divergence suggests that bullish momentum may be fading however.

Dow Jones Index Daily Chart

Hang Seng Index Technical Analysis:

The Hang Seng Index (HSI) formed a “Double Bottom” chart pattern on the daily chart and may be positioned for further price gains. The index breached above the trend-determine 100-day SMA line with upward momentum. An immediate resistance level can be found at 29,344 – the 50% Fibonacci retracement as well as the neckline of the “Double Bottom”. Breaching above this level may open the door for further upside potential with an eye on 29,778 – the 38.2% Fibonacci retracement.

Hang Seng Index Daily Chart

ASX 200 Index Technical Analysis:

The ASX 200 index reached an all-time high on Friday after breaching above a key resistance level of 7,126 – the 261.8% Fibonacci extension. Prices have since opened the door for further upside potential with an eye on 7,200. The MACD indicator formed a bullish crossover and trended higher, suggesting that upward momentum is building.

ASX 200 Index – Daily Chart

— Written by Margaret Yang, Strategist for DailyFX.com

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