Throughout this year American stock market has been on a rollercoaster of price volatility. In the first few months it was struggling from critical low oil prices. Afterwards, there was a confident recovery to the 2015 highs. This month turned to be strictly bearish for most of US stocks. You might think that oil recovery has come to an end, the answer would probably be yes, but there is another reason for stockholders to worry about - upcoming FED rate decision. In this article I would like to share my opinion on current market situation and trading opportunities in US stock market.
Latest FOMC statement has given a strong indication that Fed will most likely increase the rates in June, if it sees a further improvement in labor market and inflation dynamics. The market has momentarily reacted with strengthening US dollar against most of the currencies and metals. Presumably, under these circumstances, most of key market players faced the fact that it is high time to repay their bank loans before June 15-th. All these factors along with disappointing first quarter reports from US companies brought Dow Jones - 2% in this month. Can it go even deeper? Technical analysis will help us to answer this question.
On the daily timeframe Dow Jones 30 future has clearly started its down trend. Most of Bill Williams` indicatros approve this statement:
1) The price has dived under Alligator indicator;
2) Awesome Oscillator indicator has crossed its zero line and is currently in the red zone;
3) Breakdown of the latest down fractal.
After this strong bearish impulse wave, I expect to see a slight rebound to the moving averages and further down movement.
Picture 1. Dow Jones 30 daily chart
Considering the fact that most of US stocks are in the red zone, there are many companies which shares could continue to decline in the nearest future. I would like to share my trading recommendations:
Both Intel revenue and net income dropped 8% and 43% in the first 2016 quarter, which formed a confident down trend on the daily chart. The current price is below the Alligator lines and AO indicator, additionally we can see a breakdown of the latest fractal level (27.50). I would recommend to short the stock at the secondary fractal breakdown - 27.50.
Sell level - 27.50
Take-profit level - 28.05
Stop-loss level - 30.24
Picture 2. Intel Corporation daily timeframe
Financial situation of this company has also suffered in the first quarter, with declining revenue (-7%) and net income (-14%). I consider to sell this stock in a long-term manner. The main reason of my decision is bearish bars formation on the monthly timeframe which you can see on the following chart.
Labeled formations are one the main signals from Larry Williams` trading strategy. Low price of the previous monthly bar (79.08) coincides with fractal level on the daily timeframe, which would be a preferable entry point in the market.
Picture 4. Procter and Gamble daily timeframe
Sell level - 79.04
Take-profit level - 69.57
Stop-loss level - 83.84
Currently US stock market is suffering from many fundamental factors: upcoming interest rate hikes, strong US dollar and presumably the end of the oil market recovery. Combining both fundamental and technical analysis we could find medium and long term trading signals. If my calculations are correct, this year will be bad time to invest in American companies.
Oleksii Stanilevych, analyst
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