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Abstract: The U.S. stock market closed mixed on Tuesday, as investors waited for the passage of the debt ceiling agreement, and the mood turned cautious in the afternoon.

Fundamentals

On Tuesday, major U.S. stock indexes were mixed. The Dow Jones index fell only a few minutes after opening, and closed down slightly by 50.56 points, or 0.15%, to close at 33,042.78 points. The Standard & Poor's 500 index closed at 4,205.52 points, little changed from the previous closing price, while the Nasdaq index closed up 41.74 points, or 0.32%, to 13,017.43 points.

Wall Street's initial strength came after President Biden and House Speaker Kevin McCarthy reached an agreement in principle to raise the debt ceiling and avoid a possible catastrophic default by the U.S. government. The agreement would, in principle, raise the debt ceiling for two years and leave non-defense spending roughly flat in FY 2024 and increase it by 1% in the current fiscal year.

Fearing that the agreement may be opposed by some Republicans, they are seeking larger spending cuts, which may prolong the process of passing the bill; Therefore, the stock market is mixed.

The trend of U.S. stocks has been greatly divided recently, showing that the Dow is weak, while the Nasdaq is strong.

The Nasdaq has risen by more than 23% this year, mainly because the Nasdaq dropped by 33% last year. Relatively speaking, in the case of a (previous) sharp decline this year, there are more rebounds; The Dow dropped a little last year, and its performance this year is relatively poor.

In addition, the Nasdaq is greatly affected by valuation. It is widely expected that the interest rate hike cycle in the U.S. should peak this year, and the interest rate factor that suppresses market valuation is weaker than last year, making the performance of growth stocks better.

In addition, the profitability of some technology stocks in the Nasdaq is indeed satisfying. It is mainly artificial intelligence that drives the stock prices of a number of listed companies including NVIDIA to rise, which is an important reason for the strong trend of Nasdaq. However, this trend may not last long, mainly depending on the trend of the U.S. economy in the second half of the year.

In the short term, the economic resilience of the U.S. still exists, and the risk of a recession may be postponed until the second half of next year; High-interest rates suppress debt expansion, and the upward trend of this cycle may be limited; The long-term yield of USD assets may decline, highlighting the investment value of physical assets. On the asset side, it is difficult for U.S. stocks and U.S. Treasury Securities to show an uptrend.

Although the profits of individual technology stocks are quite satisfying, the overall profits are affected by the banking crisis in the U.S., including some industrial stocks and energy stocks, and their fundamentals are very weak. In this case, there may be downward pressure on U.S. stocks.

Technical Analysis

The Dow Jones Industrial Average rebounded on Friday after testing its 200-day SMA last week. However, due to the weaker trend on Tuesday, a break below the SMA (currently at 32,774) could lead down toward the intraday low we saw last week at 32,586. Any further risk of a break below that level could lead the index back to the low at 31,760 in 2023.

As for upside potential, the near-term goal is to recover the threshold of 33582, which is the high we saw in March. It could then extend its gains to the March 2022 downtrend line.

Overall, the index is still part of a corrective move even though it achieved significant gains in the last week. It is important to note that bearish evidence is mounting, and the correction could soon turn into a bearish trend. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 33042

Target price: 32500

Stop loss: 33775

Deadline: 2022-06-1423:55:00

Support: 32878, 32850, 32564

Resistance: 33192, 33248, 33322