Chapter 10 04/25 DJIA: Go Short at the Highs as Rotation across the Sectors Might Have Broader Impact
Abstract: After a lackluster performance last Friday, U.S. stocks continued to lack direction during Monday's trading session. Major stock indexes swung back and forth at the end of the day.
Fundamentals
Major U.S. stock indexes closed mixed on Monday. The Nasdaq fell 35.25 points, or 0.3%, to 12,037.20, while the S&P 500 rose 3.52 points, or 0.1%, to 4,137.04, while the Dow rose 66.44 points, or 0.2%, to 33,875.40.
Wall Street trading has been rocked as investors remain reluctant to take significant action ahead of earnings announcements from several prominent companies in the coming days.
Technology giant Alphabet (GOOGL), Amazon (AMZN), Intel (INTC), Meta Platforms (META), and Microsoft (MSFT) will announce quarterly results this week.
By 2023, the market value of the S&P 500 had increased by $2.4 trillion, with only six stocks ——Meta Platforms, Amazon, Apple, Netflix, Google's parent Alphabet, and Microsoft—providing US$1.6 trillion, or two-thirds of the market value.
After Netflix released a lukewarm set of data last week and Tesla, another tech darling, saw its first-quarter profit fall sharply year-on-year, investors will be looking at five of the MAANAM sextets to provide good results and optimistic prospects and help the U.S. stock market maintain the upward momentum that began last October.
According to Dow Jones market data, the S&P 500 rose nearly 4% in the three weeks before the first-quarter earnings season began on April 10. With the earnings season in full swing, the big-cap index rose 0.5% over the next two weeks.
Given the gloomy outlook for earnings growth and the expected tightening of the Federal Reserve's monetary policy, the U.S. stock market has given a surprisingly good start to the first-quarter earnings season, but this could be a short-term disadvantage for the stock market.
Meanwhile, the lack of key U.S. economic data has also kept some investors on the sidelines until several key reports are released.
Reports of consumer confidence, sales of new homes, durable goods orders, first-quarter GDP, and personal income and spending are likely to draw attention in the coming days.
Personal income and expenditure reports, including inflation data, are the Fed's top concern and could affect interest rate prospects ahead of next week's Fed meeting.
Technical Analysis
Some of the world's largest companies, including the four tech giants (Microsoft, Alphabet, Meta, and Amazon), will announce their results this week. If corporate earnings are generally encouraging, this could boost risk sentiment and support equity bulls. However, a series of disappointing results may bring new pressure to the stock market, with the Standard & Poor's 500 Index and the Nasdaq Index bearing the brunt.
Although it still rose at the close of trading on Monday, the Dow Jones Industrial Average still showed overall bearish momentum due to the rotation of other stock indexes.
The price may fall below the first support level 33840, suggesting a fall to the second support level 33587. The first support level is the overlapping support level, which gives us confidence that it will continue. The second level of support was the fluctuating low-level support, which was supported by the 23.60% Fibonacci retracement, making it stronger support.
In terms of resistance, the resistance of the daily time frame is at 34370, which is multi-band high-level resistance. This level could be a powerful barrier to any bullish trend. The second resistance level is 34659, which is a high fluctuation resistance level.
Between the first resistance and the first support, the intermediate resistance is 34135 level, which is a high resistance. It may provide some small resistance during the downtrend.
Meanwhile, the RSI has shown a bearish divergence from prices, suggesting a possible reversal soon. This supports our bearish outlook for the index. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 33875
Target price: 33264
Stop loss: 34350
Deadline: 2022-05-09 23:55:00
Support: 33718, 33693, 33590
Resistance: 33817, 33875, 33898
