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Summary: U.S. stocks were mostly lower on Friday. During Thursday's trading period, technology stocks led a rally before retreating. All three major stock indexes closed lower, with the Nasdaq leading the decline.

Fundamentals

All three major U.S. stock indexes closed in negative territory on Friday. The Nasdaq fell 138.09 points, or 1.0%, to 13,492.52; the S&P 500 fell 33.56 points, or 0.8%, to 4,348.44; and the Dow Jones Industrial Average (Dow) fell 219.28 points, or 0.7%, to 3,327.43.

With only four trading days in the week, the major U.S. stock indexes all fell more than 1%. Despite Thursday's gains, the Nasdaq, which had risen for eight consecutive weeks, and the S&P 500, which had risen for five consecutive weeks, still posted cumulative declines of 1.44% and 1.39% respectively, marking their longest consecutive weekly gains since March 2019 and November 2021. Notably, the Nasdaq experienced its largest weekly decline since March 10.

Market weakness outside the U.S. has also reached Wall Street due to ongoing concerns about interest rates and the global economic outlook.

Interest rate hikes in the UK and other countries, as well as forecasts of further Fed rate hikes, have renewed concerns that tighter monetary policy will plunge the global economy into recession. Meanwhile, overall trading activity remained relatively subdued due to the lack of major economic data releases in the U.S., as some investors remained cautious.

As we have previously mentioned, the U.S. stock market seems to be facing a "wall of worry" at the moment, which could trigger further selling in the near future. The negative factors clearly outweigh the positive ones. We believe that the risk of a sharp market correction has never been higher. The record issuance of US treasuries and the deterioration of liquidity due to reduced fiscal support are significant factors. As investors turn to defensive stocks, value stocks are expected to outperform growth stocks.

Technical Analysis

The DJIA is extending the sell-off that started on June 16 from the high point of 34,583. However, as the price approaches the previous rally point of 33,600, the negative momentum appears to be weakening.

However, technical indicators continue to show a bearish bias in the near term, although there are some early signs that the selling pressure is receding. Among them, the stochastic oscillator is heading towards the oversold territory, while the decline in the RSI has slowed even before reaching the 50 neutral mark.

If the negative pressure eases further, it is likely that the downward momentum could be halted around the previous rally point of 33,600, which also coincides with the 50% Fibonacci retracement level of the range from 32,579 to 34,583.

This remains a challenging range as there are several slightly higher resistance levels in the vicinity, notably the 38.2% Fibonacci level at 33,350.

However, if the bears continue to dominate and the price breaks below the 38.2% Fibonacci retracement, the market will shift focus to the 50-day moving average and the 23.6% Fibonacci level at 33,057. A breach of these key levels could bring the medium-term bullish outlook back to neutral, with a potential correction reaching slightly below the 32,500 level, leading to another phase of medium-term range-bound trading.

Overall, the DJIA is in a sell-off mode, but the upcoming range around the rally point of 33,600 could help reverse the downward trend. On the other hand, breaking it would jeopardize the positive outlook in the medium term. In terms of strategy, it is advisable to prioritize buying low and selling high.

Trading Recommendations

Trading Direction: Short

Entry Price: 33727

Target Price: 33600

Stop Loss: 34300

Valid Until: 2023-07-10 23:55:00

Support: 33626, 33600, 33594

Resistance: 33813, 33847, 33934