S&P 500: Downward Reversal or Just Correction?

The U.S. stock market indexes lost 0.6-0.8% on Wednesday, as investors reacted to the Fed’s Statement release at 2:00 p.m. The S&P 500 index retraced all of its medium-term downward correction of 20.2% recently and yesterday it reached another new record high of 2,954.13. Both the Dow Jones Industrial Average and the Nasdaq Composite lost 0.6% on Wednesday. The nearest important resistance level of the S&P 500 index is at around 2,950-2,955, marked by the new record high. The next resistance level is at 3,000. On the other hand, the support level is at 2,915-2,920, marked by the recent resistance level. The support level is also at 2,900. The broad stock market retraced all of its December sell-off and it broke above the last year’s high. There have been no confirmed negative medium-term signals so far. However, the index continues to trade along its last year’s high, as we can see on the daily chart:

Positive Expectations, More Short-Term Fluctuations?

Expectations before the opening of today’s trading session are slightly positive, because the index futures contracts trade 0.1-0.3% above their yesterday’s closing prices. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements today: Nonfarm Productivity, Unemployment Claims at 8:30 a.m., Factory Orders at 10:00 a.m. Stocks will likely extend their short-term consolidation. For now, it looks like a relatively flat correction within a medium-term uptrend.

The S&P 500 futures contract trades within an intraday consolidation following overnight advance. The nearest important level of resistance is at around 2,935-2,940. On the other hand, the support level is at 2,915-2,920, marked by the local low. The futures contract is close to the previous week’s local lows, as the 15-minute chart shows:

Nasdaq Slightly Below 7,800

The technology Nasdaq 100 futures contract retraces some of its yesterday’s intraday sell-off this morning, as it trades closer to the 7,800 mark. On the other hand, the nearest important support level is at 7,700-7,750. The Nasdaq futures contract trades within an over-week-long consolidation, as we can see on the 15-minute chart:

Apple’s Reversal?

Let’s take a look at the Apple, Inc. stock (AAPLWealth Strength IndexAAPL is Moderately Flat and trending Up) daily chart (chart courtesy of http://stockcharts.com). The stock gained almost 5% on Wednesday, following Tuesday’s quarterly earnings release. The price got back above the broken medium-term upward trend line again. However, yesterday’s intraday trading action was quite bearish. The resistance level remains at around $215:

Now let’s take a look at the daily chart of Microsoft Corp. (MSFTWealth Strength IndexMSFT is Moderately Up and trending Up). The stock accelerated its uptrend last week, as it reached the new record high of $131.37. Investors reacted to a better-than-expected quarterly earnings release. For now, it looks like a blow-off topping pattern. We can see some clear technical overbought conditions:

Dow Jones Also Lower

The Dow Jones Industrial Average remains relatively weaker than the broad stock market. The resistance level is at around 26,800-27,000, marked by the last year’s topping pattern and the record high of 26,951.8. Last week the blue-chip stocks’ gauge reached the new medium-term high. But then it traded closer to the 26,500 mark again. There have been no confirmed negative signals so far. However, we can see some negative technical divergences:

The S&P 500 index has reached the new record high yesterday after breaking above the recent local highs earlier in the week. The broad stock market extended its medium-term uptrend, as investors’ sentiment remained very bullish following economic data, quarterly corporate earnings releases. However, yesterday’s bearish intraday trading action may lead to some consolidation or a downward correction.

Concluding, the S&P 500 index will likely open slightly higher today and it may retrace some of yesterday’s decline. Investors will now wait for tomorrow’s monthly jobs data release.

Thank you.

paul-rejczakPaul Rejczak
Stock Trading Strategist
Sunshine Profits – Effective Investments through Diligence and Care