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Abstract: In Monday's trading, US stocks were mostly higher, adding to last week's moderate gains. With the rise of the day, the Nasdaq index and the Standard & Poor's 500 index reached the highest closing level in more than a year.

Fundamentals

On Monday, U.S. stocks traded mostly higher; however, overall trading activity remained relatively subdued as the market's lack of major U.S. economic data kept some investors on the sidelines.

The three major U.S. stock indexes broke away from intraday highs at the close on Monday. The Nasdaq index rose 202.78 points, or 1.5%, to 13,461.92 points, the S&P 500 index rose 40.07 points, or 0.9%, to 4,338.93 points, and the Dow rose 189.55 points, or 0.6%, to 34,066.33 points.

Semiconductor and internet stocks performed strongly that day, contributing to the rise of the Nasdaq index.

The Philadelphia Semiconductor Index and the NYSE Arca Networking Index rose 3.3% and 3.0%, respectively, reflecting strength in the industry.

Aviation stocks also strengthened significantly. The Arca Aviation Stock Index of the New York Stock Exchange rose by 1.8%, reaching its highest closing level in more than a year.

Software, retail, and computer hardware stocks also performed strongly, while energy stocks fell with the price of crude oil.

As Wall Street strengthens, investors are waiting for the U.S. inflation report in May to be released on Tuesday and the Federal Reserve's high-profile monetary policy statement on Wednesday. At present, the market generally expects the Fed to suspend raising interest rates, but it may also reaffirm its commitment to reduce the inflation rate to 2%.

The statement attached to the Federal Reserve may significantly impact the interest rate outlook, and the crucial secondary inflation data will be released in the next few days.

CME Group's FedWatch tool currently shows that the possibility of the Fed keeping interest rates unchanged is 78.1%, but the possibility of raising interest rates by 25 basis points again next month is 56.7%.

Market observation: The prospect of U.S. stocks is confusing. If the historical data is credible, the U.S. stock market will usher in a wave of gains in the future.

Bullish investor sentiment on U.S. stocks soared this week as the S&P 500 returned to a bullish range. AAII (American Association of Individual Investors) is an indicator reflecting the market outlook in six months, which is more than 15 points higher than the previous week, which is the biggest increase since November 2020. At the same time, the optimism about the stock market prospect is also reflected in the rising trading volume of call options relative to the total activity of options.

Historical data show that a similar surge in the AAII index bodes well for the stock market. After analyzing the data during the trough of the global financial crisis, we can find six examples of the same sharp increase as last week. In the next four weeks, these stocks all rose, and the S&P 500 index rose by an average of 5.7% during this period.

Technical Analysis

With the rise of the Nasdaq index and Standard & Poor's 500 index, the "rotation effect" will also drive the Dow Jones Industrial Average.

Although the three major indexes have risen strongly recently, as a series of stop-loss orders are triggered or upward pressure continues to increase, some bulls may be forced to take profits. But as our title says, "Bulls will not stop there and will continue to rise after the retracement."

If the bulls decide to regain control of the market and retest the high of 34253 on May 1. Before that, they must first break through the downward-sloping pressure line and the above horizontal line drawn on December 13, 2022, and May 1, 2023.

At present, these two obstacles are limiting the further rise of the index. Continuing to rise at the current momentum will only increase the new "selling pressure". To continue higher, the path of least risk is to pull back and continue higher. The path is the same in terms of trading. (It is recommended to hold the bearish outlook but not to go short while buying the dips).

Trading Recommendations

Trading direction: Long

Entry price: 33750

Target price: 34500

Stop loss: 33400

Deadline: 2022-06-27 23:55:00

Support: 33785, 33712, 33406

Resistance: 33973, 34055, 34110