After reaching the minimum levels since the beginning of the year, the American market has bounced up. In general, the “bulls'' attempt to intercept the initiative doesn't look unexpected, considering the scale of fall of key indices: Dow Jones fell from its maximum by 15%, S&P 500 decreased by 20%, and NASDAQ collapsed by 30%.
And we could expect that it was the NASDAQ, which had fallen stronger than all, would be the strongest and bounce up. However, it is NASDAQ that shows moderate growth of 2.84% from the minimum, S&P 500 — by 3.78%, and Dow Jones rose immediately by 4.18%.
In the condition of tightening the monetary policy of the Fed, a record for 40 years of price growth and sharply increased geopolitical tension, investors prefer shares of “old economy” companies that have the greatest weight in the Dow Jones index.
Banks, energy companies, and manufacturers of consumer staples can even benefit from current adverse business conditions.
Banks are benefiting from the rate hikes in the economy since interest income from issued loans is growing. This week, JPMorgan increased the forecast for annual revenue, which led to the rise of other companies in the financial sector. And the oil companies (Chevron and Exxon Mobil) set long-term revenue records and arrived against the background of take-off prices of “black gold”.
On the chart, the reversal pattern “Doji star” has received confirmation. A series of 5 growing days in a row has already allowed the Dow Jones index to bounce by 6% of the minimum on May 20. And considering the Friday factor, buyers today can be inactive. Therefore, you can wait for the next week and focus on reaching the level of 33000.
Additional support can be obtained from the "turn of the month effect", which indicates favor of the growth of stock indices at the end of one month and the beginning of the next.
The following options of trading strategy can be applied:
1) Buy Dow Jones today at the current price. Take profit — 33000. Stop-loss — 32150.
2) Buy Dow Jones next week (not lower than 32000). Take profit — 33000. Stop-loss — 31700.
Also, traders can use Trailing stop instead of fixed Stop-loss at their disposal.
This content is for informational purposes only and is not intended to be investing advice.
