Chapter 8 07/05 US30: Net Position Remains Bullish, But an Increase in Selling Volume Has Started to Emerge
Abstract: After the strong rise of the stock market last week, the performance of the stock market on Monday was relatively flat. The three major stock indexes fluctuated around the opening level all day and then closed slightly higher.
Fundamentals
As of Monday's close, the Nasdaq index rose 28.85 points, or 0.2%, to 13,816.77 points. The Standard & Poor's 500 Index rose slightly by 5.21 points, or 0.1%, to 4,455.59 points. The Dow rose 10.87 points, or 0.1%, to 34,418.47. With the Nasdaq index and the Standard & Poor's 500 index leading the gains, U.S. stocks reached their best closing level in more than a year.
On Monday, due to the uncertainty of the market's recent prospects, investors seemed reluctant to take major measures during the shortened trading hours and the July 4 holiday; As a result, Wall Street transactions fluctuated.
Today, when the market resumes trading, the focus will shift to the minutes of the Federal Reserve meeting in June and the monthly employment report that has received much attention.
Recent economic data show that the U.S. economy is resilient, and the slowdown in inflation has increased people's optimism about the interest rate outlook. Although it is still widely expected that the Federal Reserve will raise interest rates by 25 basis points later this month, investors still hope that the interest rate hike cycle will end as soon as possible.
On the U.S. economy, a report released by the Institute for Supply Management showed that the contraction rate of manufacturing activity unexpectedly accelerated in June.
ISM said that the manufacturing PMI in June dropped slightly from 46.9 in May to 46.0, and below 50 indicates contraction. The decline surprised the market, which had expected the index to rise slightly to 47.2.
Another report released by the U.S. Department of Commerce shows that the increase in U.S. construction expenditure in May exceeded expectations, although this increase occurred after the significant downward revision of the increase in April.
Market observation: The U.S. stock market rebounded sharply in 2023, and the Nasdaq 100 index, which is dominated by technology stocks, recorded the biggest increase in the first half of the year, because of the high popularity of the artificial intelligence sector and people's bets that the Fed will soften its policy prospects. However, due to concerns about economic recession and gloomy corporate earnings prospects, the prosperity of U.S. stocks may fade in the second half of the year.
At the end of June, investors made a big bet on U.S. stock futures, which made the position look too large and increased the risk of callback.
Last week, the S&P 500 index futures increased by about US$7.1 billion, and investors have already held large-scale profits. However, considering that the market has gone far, investors may sell some positions in the rest of this week's trading to protect profits. Although net positions are still bullish, signs of caution have emerged.
Technical Analysis
The Dow Jones Industrial Average is now neutral, indicating that the market lacks a clear direction.
Momentum indicators are mixed at this stage. The Average Directional Movement Index (ADX) has fallen rapidly to just above 25, signaling that a mild bullish trend is still in play. Meanwhile, the stochastic oscillator has returned to the overbought zone, making bulls more cautious before considering a new high for 2023.
The index may face some correction as it approaches new highs for the year. The adjustment range is (as shown in the chart, red AB=CD) 34000 - 34100 range then test point D. If the price correction is too large and falls below the 33621 level, then a short-term breakout to a new yearly high of 34589 will not be possible.
On the upside, the first resistance level at 34534 is a multi-volatility resistance level. The second resistance level at 34803 is the Fibonacci convergence zone at 127.20% Fibonacci extension and 61.80% Fibonacci retracement.
On the downside, the first support level at 34283 is considered retracement support, supported by a 23.60% Fibonacci retracement. In addition, the second support level at 33840 acts as overlapping support, indicating the presence of Fibonacci convergence and 78.60% Fibonacci retracement.
Overall, the index's current trend favors the bears, but the uptrend has not completely disappeared either. It is recommended to buy low and sell high while considering the key support and resistance.
Trading Recommendations
Trading direction: Short
Entry price: 34418
Target price: 33826
Stop loss: 34600
Deadline: 2023-07-19 23:55:00
Support: 34283, 34100, 33840
Resistance: 34465, 34534, 34803
