Chapter 1 06/29 DJIA: Successful Bottoming in the Range, Focus on Buying the Dips
Summary: Major U.S. stock indexes were in recurring action on Wednesday, with overall trading continuing to be mixed. Despite the strong rebound of the tech-heavy Nasdaq index on Tuesday, the Dow Jones Industrial Average (DJIA) remains in a corrective phase.
Fundamentals
In Wednesday's trading, the Nasdaq Composite index experienced a significant pullback from its intraday high, but still closed with a gain of 36.08 points, or 0.3%, at 13,591.75. The tech-heavy index remained positive. The S&P 500 index dipped slightly by 1.55 points, holding steady at 4,376.86, while the Dow Jones Industrial Average (DJIA) declined by 74.08 points, or 0.2%, to 33,852.66.
The Nasdaq index initially dropped in the morning session, mainly due to notable weakness in semiconductor stocks.
However, it reversed course and turned positive later on. This shift was attributed to a report in The Wall Street Journal stating that the Biden administration is considering imposing new restrictions on the export of artificial intelligence chips to China. The industry reacted with weakness following the news.
The report cited anonymous sources stating that the Department of Commerce could take action as early as the beginning of next month, halting shipments of chips to China and other relevant countries without prior approval.
The Wall Street Journal noted that the potential restrictions were motivated by concerns that China could use the AI chips for weapons development and hacking.
However, shortly after the start of trading, selling pressure eased, and the Philadelphia Semiconductor Index rebounded significantly from its lows. This, in turn, led to a resurgence in other tech stocks, resulting in an improved performance of the Nasdaq index. Notably, Tesla (TSLA) and Netflix (NFLX) showed significant gains.
At the same time, Dow component stocks Travelers (TRV), Home Depot (HD), and (UNH) continued to face pressure, putting downward pressure on the blue-chip index.
During the New York session, investors closely monitored the remarks of Fed Chairman Jerome Powell during a panel discussion at the European Central Bank's central banking forum in Sintra, Portugal. Powell reiterated his expectation of further interest rate hikes in the coming months and noted that consecutive rate hikes throughout the remainder of the year were not out of the question. Also in attendance at the event were ECB President Christine Lagarde, Bank of England Governor Andrew Bailey, and Bank of Japan Governor Kazuo Ueda.
Technical Analysis
The DJIA has rebounded from the previously emphasized range of 33,600 and is currently hovering above 33,800. The bulls have been establishing a series of higher lows above the 33,600 range, seemingly progressing towards our target level of 34,288 and building a more sustained bullish trend. However, they must first overcome the current market calmness, as the tightening of the Bollinger Bands clearly indicates.
Similarly, the momentum indicator appears to have taken a backseat. The Average Directional Index (ADX) is hovering below 25, indicating that the market is still in a range-bound trading phase, while the RSI is consolidating sideways, slightly above the midpoint of 50. Even though the Stochastic Oscillator confirms the market's quiet state, it is still undergoing a positive momentum shift as it remains in the middle of its range.
If the bears decide to take control of the market, they will first attempt to breach the crucial 33,600 range. The convergence of the 50-day and 100-day SMAs, the October 1, 2021 low, and the upward sloping trendline from October 13, 2023, signifies that the bears' determination will face a real test. Moreover, breaking through the 32,767-33,600 range might prove more challenging than anticipated.
On the other hand, the bulls aim to retest the high of August 16, 2022, at 34,288, but they must first break above the downtrend line from December 2, 2022. Subsequently, the high of December 13, 2022, at 34,930, will be the next target.
Overall, in terms of trends, as upward movement encounters the least resistance, the bears must take prompt action if they intend to see a significant pullback towards the 33,000 range; otherwise, the prolonged time cycle and the continuous rise in higher lows will work against them. In terms of strategy, buying the dips should be the primary approach.
Trading Recommendations
Trading Direction: Long
Entry Price: 33852
Target Price: 34288
Stop Loss: 33350
Valid Until: 2023-07-13 23:55:00
Support: 33659, 33406, 33464
Resistance: 33870, 34286, 34309
