Stocks extended their short-term downtrend on Friday before bouncing off and closing slightly lower. Investors continued to take profits off the table following the two-month-long advance. Is this a downward reversal or just a correction before another leg higher?
The U.S. stock market indexes lost 0.1-0.2% on Friday, as investors continued to take profits off the table following two-month-long advance. The S&P 500 index retraced more of its October-December downward correction of 20.2% a week ago, before reversing lower and getting back below the 2,800 level. The market fluctuated close to the previous medium-term local highs and then it retraced most of its February's advance. The Dow Jones Industrial Average lost 0.1% and the Nasdaq Composite lost 0.2% on Friday.
The nearest important resistance level of the S&P 500 index is now at around 2,765-2,770, marked by the Thursday's daily gap down of 2,767.25-2,768.69 and the recent local lows. The resistance level is also at 2,800-2,820, marked by the medium-term local highs. On the other hand, the support level is at 2,730, marked by the mid-February local low. The next support level is at around 2,720, marked by February the 11th daily gap up of 2,718.05-2,722.61 and the Friday's daily low..
The broad stock market retraced all of its December sell-off and it got close to the medium-term resistance level of around 2,800, marked by the October-November local highs. So is it still just a correction or a new medium-term uptrend? The market broke above the 61.8% Fibonacci retracement of the 20% decline. And we may see an attempt at getting back to the record highs. But will the index break above the mentioned previous local highs? There have been no confirmed negative signals so far. However, the index broke below the two-month-long upward trend line on Thursday:
Slightly Positive Expectations
Expectations before the opening of today's trading session are slightly positive, because the index futures contracts trade 0.1-0.2% above their Friday's closing prices. The European stock market indexes have gained 0.3-0.4% so far. Investors will wait for some economic data announcements today: Retail Sales number at 8:30 a.m., Business Inventories at 10:00 a.m. The broad stock market will likely retrace some of its recent decline. However, we may see some more uncertainty, as stocks get closer to their previous local lows.
The S&P 500 futures contract trades within an intraday uptrend, as it extends its overnight advance. The nearest important resistance level is now at around 2,760-2,765, marked by some previous fluctuations. On the other hand, the support level remains at 2,740, among others. The futures contact is close to the short-term downward trend line, as the 15-minute chart shows:
Nasdaq Also Slightly Higher
The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its recent decline. The market fell below the 7,000 mark on Friday, as investors took profits off the table following an almost 1,400-point rally from December the 26th local low of around 5,820. The nearest important resistance level is at around 7,100, marked by the recent support level. On the other hand, the support level is at 6,950-7,000. The Nasdaq futures contract gets closer to its recent local lows, as we can see on the 15-minute chart:
Apple, Amazon - More Sideways Trading Action
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market retraced some more of the November-December sell-off recently. And now it is extending the consolidation along the level of $170-175. But will it come back above $200? For now, it still looks like a medium-term upward correction following the November-December sell-off:
Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The market broke above its medium-term downward trend line on Monday a week ago but then it came back lower. There is a relatively important resistance level of around $1,740-1,750, marked by the previous local high:
Dow Jones - New Downtrend or Just Downward Correction?
The Dow Jones Industrial Average extended its short-term uptrend a week ago, but then it reversed lower. The blue-chip stocks' gauge fell below the 26,000 mark. For now, it looks like a downward correction. The market got closer to its early February consolidation. It may act as a short-term support level:
Nikkei Back at 21,000
Let's take a look at the Japanese Nikkei 225 index. It accelerated the downtrend in late December, as it fell slightly below the level of 19,000. Since then it has been retracing the downtrend. Recently the market broke above its local highs and the 21,000 resistance level. But then it bounced off the resistance level of around 22,000 and retraced most of the recent advance. It is back at the 21,000 mark again:
The S&P 500 index slightly extended its recent run-up on Monday a week ago, before reversing lower and closing below the 2,800 level that day. Then it retraced some more of its recent advances and it broke below the two-month-long upward trend line on Thursday. So it bounced off the mentioned medium term resistance level. For now it looks like a correction within an uptrend.
Concluding, the S&P 500 index will likely open slightly higher today. But we may see some short-term uncertainty following the last week's decline. There have been no confirmed short-term positive signals so far.
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Paul Rejczak Stock Trading Strategist Sunshine Profits - Effective Investments through Diligence and Care
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