Taiwan stock market overbought rally

What happened: The Taiwan Stock Exchange (TWSE) has experienced a volatile rally, surging nearly 14% in eight sessions to reach record highs, before retreating slightly. Key events include a 5% gain in three consecutive sessions (May 24-26), followed by a 1.8% drop over three days (May 27-29), and a subsequent 3% climb to another record high on June 1.

Market impact: The rally has been broad-based, with the tech-heavy TWSE weighting up 16% year-to-date. Semiconductor stocks, such as Taiwan Semiconductor Manufacturing Company (TSMC), have been particularly strong, driven by robust global demand and supply chain disruptions. However, profit-taking and overbought conditions have led to recent pullbacks, affecting the broader market.

What to watch next: The narrative's evolution depends on upcoming earnings from key tech companies like TSMC (Q2 2021 earnings on July 14), global semiconductor supply chain updates, and geopolitical developments surrounding Taiwan. Additionally, the TWSE's next technical support level around 40,000 points and resistance at 41,500 points will be crucial to monitor.