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Equities gain slightly ahead of a vital week

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Nick Goold

Dow Jones Index

Another positive week for the Dow Jones index as signs that higher official interest rates are starting to slow the US economy as hoped. Last week's biggest news was that Thursday's US weekly jobless claims rose to 261,000, well above expectations and the highest level since October 2021. The market predicts a 70% chance of no change at this week's FOMC meeting.

While the current sentiment for equities is increasingly bullish, resistance at 34,000 easily held as investors were cautious ahead of a big week of economic announcements. Early this week will see an update on the US inflation situation with the CPI Tuesday and PPI Wednesday. Continued signs of slower inflation could see a break of 34,000, and investors start to target a test of this year's high at 34,500. Also of note is Thursday's US Retail Sales, one of the best leading indicators of the economy.

While difficult to predict the market ahead of so many key news events, the current uptrend is strong. The best strategy in the week ahead for short-term traders is to buy close to 10-day moving average support. Alternatively, the medium-term trend is still sideways, so there could be the opportunity to take advantage of overbought conditions and sell should the market rise significantly.

Dow daily chart June 12

Resistance: 34000, 34155, 34500, 35000

Support: 33000, 32550, 31750

Nikkei 225 Index

The Nikkei index's bull market continues with a bout of profit-taking midweek resulting in solid buying support at the 10-day moving average. The already positive sentiment was supported by an upward revision to Japan's first-quarter economic growth to 2.7% from 1.6% as corporations increased investment in new projects. Investments in the service sector are rising as corporations look to benefit from rebounding foreign inbound tourism.

Long-term Japanese interest rates rose marginally to 0.43%, which could be a future concern. The Bank of Japan will meet on Thursday and Friday, but little change in current policy is expected. Bank of Japan Governor Kazuo Ueda has stated that the central bank will patiently continue with monetary easing until it achieves its 2% price stability target.

The large fall last Wednesday could signal a temporary pause in the explosive uptrend of the two months. While the market remains above the 10-day moving average, it is better to look for higher. Still, short-term traders could find profitable range trading opportunities at the start of the week as the market awaits the Bank of Japan and FOMC meetings.

Nikkei daily chart June 12

Resistance: 32710, 33000, 34000

Support: 31650, 30800, 30500, 30000, 29360

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