Asia Open: Wall Street extended sell-off, HSI eases off overbought technical conditions

US indices extend last Friday’s decline

Major US indices started the new week with an extension of sell-off from last Friday and while the extent of the decline was narrower, a close near session lows continue to underscore fragile sentiments. Further unwinding of exposure in the growth sectors remained the preferred play, while market participants sought refuge in healthcare (0.75%), financials (+0.45%). The Dow Jones Industrial Average (DJIA) edged up 0.08%, while the Nasdaq diverged with a 1.2% slide.

Look-ahead

Amid weak market seasonality, NVIDIA’s upcoming earnings and Microsoft’s cancellation of data centre leases—raising fears of an oversupply in the artificial intelligence (AI) infrastructure—offered strong incentives for market participants to lock in profits in relatively overvalued tech. With the US economic surprise index back at negative levels and its lowest since September 2024, the underlying growth scare could likely persist for a while as well. The Conference Board Consumer Confidence Index will be on watch today, with expectations of a third consecutive monthly decline to 102.7 from 104.1.

Ahead, NVIDIA’s earnings will be seen as a pivotal market driver, with options pricing implying a potential price swing of more than 7%. With the US technology sector consolidating in recent months, we will need NVIDIA to fire on all fronts to reignite buyers’ sentiments and calm nerves around easing tech growth prospects. Consensus estimates forecast a 72% year-on-year revenue surge to $38 billion, with earnings per share rising 63% to $0.84.

Nasdaq 100 back to retest a critical trendline support

The recent pullback has brought the Nasdaq 100 index back at a critical juncture, leaving eyes on a lower channel trendline support at the 21,200 level. This level has held firm on at least three occasions since the start of the year, but jumping into longs may still be premature, given the looming NVIDIA earnings, which could single-handedly dictate market direction. Additionally, multiple retests of support within a short period increase the risk of a breakdown. A failure to hold this trendline could open the door for a move toward the 20,640 level next.

Asia Open

The market weakness is expected to roll over into Asia, with Nikkei down 1.50%, ASX down 0.86% and KOSPI down 0.67% at the time of writing. Market participants may be back to price for tariff risks, after US President Trump reiterated that tariffs on Canada and Mexico "will go forward" once the current one-month delay expires next week. While Trump’s rhetoric may be to ramp up pressures for trading partners to take action and there is the possibility of a last-minute delay in the likes of early-February, the uncertainty may still keep some market participants on the sidelines.

Attention ahead will be on Chinese equities, especially after the Nasdaq Golden China Index tumbled more than 5% overnight. And given its stellar rally over the past month, market participants will be watching closely to determine if this marks the start of a wider pullback.

The Hang Seng Index (HSI) has retreated off its October 2024 high for now, with its daily relative strength index (RSI) crossing back into neutral territory. Given the trend reversal to the upside on higher highs and higher lows over the past year, looking to buy on dips could remain the strategy. But for now, further moderation in technical conditions remain highly possible and any potential move in its daily RSI back to its midline may be looked upon as an attractive long proposition, where it has held up on two occasions since the start of the year.