The Taiwan stock market continues to show volatility in May, rebounding to the April 2 point of 21,298 and filling the gap at 21,525, indicating a V-shaped reversal pattern with strong momentum. However, the index is approaching the pressure zone near 22,000, with the 26-week moving average falling to 22,125, increasing the pressure from above. From October last year to February this year, the market consolidated between 22,055 and 23,943 for about five months, before rebounding from 22,000 to a low of 17,306, showing a significant difference in the duration of the base and head formations.
During this rebound, the average monthly volume has been between NT$310 billion and NT$320 billion, significantly lower than the average monthly volume during the head period, which was between NT$350 billion and NT$390 billion, indicating insufficient momentum for a sustained advance. As a result, the market needs to undergo a phase of consolidation to build a stronger base before advancing further.
Breakthroughs above the seasonal line and a stabilization of the seasonal line upward, combined with a golden cross of the monthly line, will create robust mid-term upward momentum, similar to strong uptrends seen in 2022 and 2024. Conversely, if the market drops below the seasonal line with a downward trend, it may enter a prolonged correction period.
The current seasonal line is at NT$20,998, requiring adjustments over 18 trading days in the high range of 21,951 to 22,871. Unless the market makes a strong rebound above 22,000 points, the downward trend of the seasonal line is likely to continue.
In terms of the fundamental outlook, while Taiwan has shown strong economic growth in the first half of the year, uncertainties related to tariffs may result in a significant decline in economic growth rates in the second half. Additionally, the U.S. courts have ruled against Trump’s tariff policies, which adds complexity to U.S.-China trade negotiations.
Given the cautious market sentiment, investors are advised to use selective stock operations while monitoring the seasonal line’s trends and volume changes, along with tariff developments.