SIMEX Taiwan futures recouped a chunk of their recent losses by yesterday's close, edging back into safe territory on the 14-day relative strength index.
Key September futures, battered on Monday as trading resumed after a three-day break following last week's earthquake, kept to a higher range with activity driven by short-covering.
Dealers said players were reluctant to initiate new positions after the volatility of the last two sessions. The underlying MSCI Taiwan index ended down 2.32 percent on the day at 334.20 while Taiwan's benchmark weighed index closed 2.35 percent lower at 7,577.85.
"Today [Tuesday] was a non-event compared to yesterday's sell-off. [The] levels have been quite healthy," a trader at a local futures house said, adding that the worst of the earthquake's fallout had already been factored in.
Another trader from a different house said that although volume had picked up late, much of the trading had been dominated by players covering existing positions.
Some 9,000 lots were traded compared to over 12,000 the previous day.
"We had a lot of short-sellers in the market covering positions rather than genuine sellers," the second trader said.
Technically, the September contract looked set to consolidate over the coming days, with the 14-day RSI creeping back above the 30 oversold mark from Monday's low of 16.88.
Traders saw the contract trading in a range between 300 and 330 in the coming days.
On Monday, the September contract fell more than seven percent, triggering a 15-minute freeze on the selling price -- one of the constraints SIMEX imposes on the Taiwan stock futures market.
Price action in the futures market can offer a gauge of possible moves in Taiwan stocks, especially as SIMEX Taiwan futures are not constrained in the same way as the cash market.
Taiwan narrowed volatility limits on its stock and futures markets on Monday so that no price can fall more than 3.5 percent in a single day, compared with the previous seven percent limit.
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