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Summary: In Friday's trading, the U.S. stock market saw significant gains, with major indices closing higher, led by the tech-heavy Nasdaq index.

Fundamentals

The three major U.S. indices pulled back from their highest levels at Friday's close but still maintained strong gains. The Nasdaq index rose by 196.59 points, or 1.5%, to 13,787.92 points, while the S&P 500 index increased by 53.94 points, or 1.2%, to 4,450.38 points, and the Dow Jones Industrial Average (DJIA) climbed by 285.18 points, or 0.8%, to 34,407.60 points.

For the week ending June 30, the S&P 500 index recorded a gain of 2.4%, the Nasdaq index rose by 2.2%, and the DJIA increased by 2.0%.

Wall Street rebounded after the U.S. Department of Commerce reported a surprising slowdown in the year-on-year consumer price growth rate for May.

The report indicated that the year-on-year consumer price growth rate decreased from 4.3% in April to 3.8% in May.

The core consumer price index, which excludes food and energy prices, also slowed down from 4.7% in April to 4.6% in May. The market had previously expected the growth rate to remain unchanged.

Despite the market's general expectation of a 25-basis-point rate hike by the Fed this month, the data increased optimism that the central bank would not further tighten monetary policy.

The U.S. stock market accelerated its upward trajectory after the Fed's preferred inflation gauge showed no signs of significant inflationary pressures, and the consumer price index exhibited signs of weakness.

As of the last trading day in June, the three major U.S. indices collectively closed the first half of the year with gains. The DJIA and the S&P 500 index rose by approximately 3.8% and 16%, respectively, marking the third consecutive quarter of gains, while the Nasdaq index increased by around 31%. Among them, popular tech stocks performed strongly. Nvidia saw a cumulative increase of about 190% in the first half of the year, Tesla rose by approximately 112%, Apple increased by around 49%, Amazon climbed by about 55%, and Microsoft rose by 42%.

Driven by heavyweight tech stocks, the U.S. stock market experienced a rally in the first half of the year, and the S&P 500 index entered the bull market territory. Despite the banking crisis briefly impacting the market, factors such as overall lower inflation and boosted market sentiment helped uplift the market. However, concerns about the sustainability of the narrow upward momentum in the U.S. stock market remain, with expectations of a recent correction or consolidation.

We believe that the fundamentals of the U.S. stock market are under pressure. With the earnings per share of the majority of S&P 500 constituents continuously declining, the stock market may face risks. AI-related stocks have contributed to driving the market higher this year, but such a narrow breadth of the rally is not encouraging and often signals an upcoming market correction.

Technical Analysis

The DJIA has encountered a pause after reaching near the key resistance level of 34,589, entering a period of consolidation. This level was last seen in December 2022, marking a peak before a subsequent downturn. The index has been rejected for the third time near this same level, potentially signaling another storm ahead. However, it could also lead to an accelerated upward movement.

From a technical perspective, the overbought signals from the RSI and stochastic oscillator support a short-term negative trend. However, there are no clear signs indicating that the oscillators have reached their bottom. This suggests that after a brief correction, there may be a potential for an accelerated upward momentum.

The possibility of accelerated upward movement is mainly due to the change in the structure of the pullback.

With the significant price increase last Friday, the bulls have surpassed the high point of the "left shoulder" (blue arrow), implying the potential continuation of the uptrend. However, the price should not fall below the previous low of 33,626; otherwise, the uptrend would be invalidated.

Overall, the DJIA has recovered a significant portion of its losses within the descending channel, confirming a slowdown in the downward momentum. However, whether it can further advance depends on whether the range is breached. (This is more driven by market sentiment.) In terms of strategy, it is recommended to focus on positioning and portfolio allocation.

Trading Recommendations

Trading Direction: Long

Entry Price: 34100

Target Price: 35210

Stop Loss: 33400

Valid Until: 2023-07-17 23:55:00

Support: 33976, 33615, 33402

Resistance: 34535, 34589, 35210