{x} | Trading.live

Abstract: In Tuesday's trading, most U.S. stocks rose, continuing the upward trend on Monday. With the continuous rise, the Nasdaq index and the S&P 500 index once again hit the highest closing level in more than a year, while the Dow hit a four-month closing high.

Fundamentals

The three major U.S. stock indexes left their intraday highs at the close on Tuesday but remained firmly bullish. The Nasdaq index rose 111.40 points, or 0.8%, to 13,573.32 points, the S&P 500 index rose 30.08 points, or 0.7%, to 4,369.01 points, and the Dow rose 145.79 points, or 0.4%, to 34,212.12 points

Wall Street continued to strengthen after the Department of Labor released the highly anticipated report on consumer price inflation in May, which showed a moderate decline in inflation.

According to the report, the consumer price index rose slightly by 0.1% in May after rising by 0.4% in April. The market had expected the price to rise by 0.2%. Core consumer prices, excluding food and energy prices, rose by 0.4% in May, which was in line with the monthly increase in the previous two months and the market forecast.

The Department of Labor also said that the annual growth rate of consumer prices slowed to 4.0% in May from 4.9% in April. It is lower than the market's previous forecast growth rate of 4.1%.

In May, the annual growth rate of core consumer prices also slowed down from 5.5% in April to 5.3%, which is in line with market expectations. This increase is the smallest annual increase since the COVID-19 pandemic in March 2021.

When the Fed announced its monetary policy decision on Wednesday, these data increased investors' optimism about the Fed's suspension of interest rate hikes, which was an important factor in pushing U.S. stocks to continue to rise. As the inflation rate continues to slow down, some leading indicators (wholesale car prices, and weak consumers) support the argument that the deflation process will continue.

After the report was released, CME Group's FedWatch tool showed that the possibility of the Fed keeping interest rates unchanged was 91.9%.

Market observation: if the FOMC chooses to suspend or "skip" after Wednesday's meeting, it will mark the first time that the Fed has not raised interest rates in the tightening cycle since March 2022.

At present, the market thinks that there is a high probability that the Fed will suspend interest rate hikes in June. Even if it is expected by the market, the bitmap will release more hawkish signals. The updated bitmap will include a higher terminal interest rate.

From the past interest rate hike cycle, whether the Fed raises interest rates, cuts interest rates, or keeps interest rates unchanged, U.S. stocks usually climb on the resolution day and then bring about substantial results. After all, the interest rate hike cycle is not over. No matter what Powell said at the press conference that followed.

Technical Analysis

The Dow Jones Industrial Average successfully broke through the bearish pressure in Tuesday's trading and broke through three resistances in one fell swoop (see figure).

The stochastic oscillator confirms this overextended momentum as it continues to move in its overbought zone, hovering near its SMAs. A drop below its overbought zone would be considered a bearish signal. Meanwhile, the Average Directional Index (ADX) still points to the bullish zone, but the momentum is waning.

If the stochastics signal is bearish, the shorts will soon fall back to the 33,800 range and aim for the busier 33,500 range set by the high of December 13, 2022, and the 61.8% Fibonacci retracement of March 5, 2023. Even lower, it would test the 33,000 range, to show the determination of the bears.

If bulls decide to ignore mixed technical signals, their goal will be to retest the 2022 high of 34,589. If successful, they will have a chance to hit a higher high.

In conclusion, the bulls appear to be setting up for higher highs. However, they seem to need to understand that a short-term correction is needed after the aggressive rally since the March 15 low this year. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 34212

Target price: 33760

Stop loss: 34560

Deadline: 2022-06-28 23:55:00

Support: 34127, 34077, 33806

Resistance: 34482, 34589, 35195