The U.S. government has never defaulted on its debt (treasury bonds). However, the U.S. government is nearing a possible default as soon as June 1st. Such an event would impact the multitrillion-dollar fixed-income market and the global financial markets.
U.S. stocks traded lower today following the debt ceiling standoff between Speaker Kevin McCarthy and President Biden ended on a positive note but without a resolution. Investors also continue to worry about the rise in interest rates, the Fed tightening process, and the recession.
What stands out the most on the charts are the price movements over the past year showing higher lows from the Oct 2022 bottoms and flat-trending trading ranges on the upside. Most of the year-to-date returns have come from several mega-cap Technology names as market breadth remains poor. While techs have done well the rest of the market has lagged.
It raises the question of whether the rally can continue without broader market participation. The narrow leadership in a few stock market indexes and S&P 500 sectors has kept many traders and investors on the sideline. That could change if market breadth improves and expands beyond the mega-cap technology area.
Although stocks can still trend higher over the near-to-medium term, we can expect stocks to face formidable resistance into the summer months as mega-tech names have come a long way since the Oct 2022 bottom and are due for consolidations.
It is possible that while mega-cap tech stocks consolidate their gains, laggards take over market leadership, at least from a near-term perspective. Under this scenario, any market corrections will be shallow and contained, reaffirming the October 2022 lows as major market bottoms and leading to resuming of the uptrend.
In the meantime, enclosed is an update of support and resistance zones for SPX, INDU, NYA, COMPQ, NDX, MID, and SML.
SPX (4,145.58) – Support = 3,764.5-3,810 and Resistance = 4,279-4,325
INDU (33,055.51) – Support = 31,400-32,600 and Resistance = 34,300-34,700
NYA (14,172.27) – Support = 14,471-14,867 and Resistance = 14,854-16,222
COMPQ (12,560.25) – Support = 10,983-11,547 and Resistance = 12,588-13,181
NDX (13,672.54) – Support = 11,492-12,115 and Resistance = 13,721-13,894
MID (2,444.29) – Support = 2326-2,398 and Resistance = 2,646-2,739
SML (1,152.01) – Support = 1,058-1,102.5 and Resistance = 1,303.5-1,321