The drastic sell-off in US technology shares surprised many last night. Nasdaq lost 1.27% whereas S&P remained flat and Dow advanced 0.44%.

The divergence in their performances may be arised from US senate’s new round of debate over corporate tax cut, which suggested reducing the corporate tax rate to 22 percent instead of 20 percent in an attempt to strike a deal without breaching the deficit limits. According to Bloomberg, the average effective tax rate for US technology companies is approximately 18.5%, which is already lower than the proposed corporate tax cut target of 20%. If the new proposal of 22% is approved, these companies are going to benefit even lesser from the reform.

Technology giant companies “FAANG” – Facebook, Amazon, Apple, Netflix and Google, tumbled 4%, 2.7%, 2.0%, 5.5% and 2.4% respectively. Chinese e-commerce giant Alibaba lost 3.6%. Profit-taking activities could also be a main reason behind, and if it is so, this correction is likely to be temporary.

Weakness may come across Asian stock market today, with Asian leading technology companies – Tencent (700 HK) and Samsung, in focus. North Korea’s recent missile launch is likely to weigh on market sentiment across Japan and South Korea, although traditional safe havens such as gold and Japanese yen both trading lower overnight.

In Singapore, the Straits Times Index is likely to consolidate around 3,430 points this week as the upside is capped by rising geopolitical uncertainties and poor performances in the regional markets. The downside, however, is cushioned by relatively-low valuation and improved economic outlook.

Technical Analysis:

  • 10-Day Simple Moving Average has flipped downward, suggesting temporary correction
  • SuperTrend (10,3) remains in the green, therefore the mid-term uptrend remains intact
  • MACD has formed a bearish crossover

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