Stocks were mixed on Friday, as investors hesitated following Thursday's decline and a short-term profit-taking action. The S&P 500 index got closer to the 2,700 mark again last week. So is this just a downward correction or some new downtrend?
The U.S. stock market indexes were mixed between -0.3% and +0.1% on Friday, as investors hesitated following the Thursday's decline. The S&P 500 index broke above its short-term consolidation two weeks ago and it continued higher. The market got above the 61.8% Fibonacci retracement of its October-December downward correction of 20.2% (2,713.88), but then it retraced some of the advance. The Dow Jones Industrial Average lost 0.3% and the Nasdaq Composite gained 0.1% on Friday.
The nearest important resistance level of the S&P 500 index is at 2,720-2,725, marked by Thursday's daily gap down of 2,719.32-2,724.15. The resistance level is also at 2,740, marked by the local high. On the other hand, the support level is at 2,700-2,710, marked by the previous resistance level. The support level is also at 2,650.
The broad stock market broke below its two-month-long trading range in the mid-December, as the S&P 500 index fell below the level of 2,600. Then the market accelerated lower and it broke below the 2,400 mark. Since then, it has retraced more than 61.8% of the whole decline off the September high. The index got closer to its October-November local highs and the resistance level of 2,800 recently, as we can see on the daily chart:
Positive Expectations, but Will the Rebound Continue?
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.3-0.4% above their Friday's closing prices. The European stock market indexes have gained 0.5-0.8% so far. There will be no new important economic data announcements today. The broad stock market will likely continue to fluctuate following last Thursday's downward correction.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its recent decline. The nearest important resistance level is at around 2,725-2,735, marked by last week's topping consolidation. On the other hand, the support level is at 2,695-2,700, among others. The futures contract accelerated its short-term uptrend this morning, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. The market gained over 1,200 points from December the 26th local low of around 5,820 in the recent weeks. And we saw some short-term technical overbought conditions last week. The nearest important resistance level is now at 6,950-7,000. The support level is at 6,900, among others. The Nasdaq futures contract got closer to the 7,000 mark again, as we can see on the 15-minute chart:
Big Cap Tech Stocks Continue Sideways
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). Apple released its quarterly earnings recently. Then the stock broke above the recent trading range and the resistance level of $155-160. It retraced some more of its November-December sell-off. But on Thursday it bounced off $175, retracing some of the recent advance. For now, it looks like a short-term downward correction:
Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The market broke above one of its three-month-long downward trend lines a month ago. Since then it has been going sideways. There is a resistance level at around $1,700-1,750. Recently it bounced off that resistance level following quarterly earnings release:
Dow Jones Above the Broken Downward Trend Line
The Dow Jones Industrial Average extended its short-term uptrend last week after breaking above its medium-term downward trend line. Then it retraced some of the advance as it fell closer to 25,000 level. Will the blue-chip stocks' gauge continue higher and reach its record high again? Or reverse lower in the near term? There have been no confirmed negative signals so far. But there is a resistance level of around 25,500-26,000:
Japanese Nikkei Still Relatively Weak
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 it got close to 21,000 mark. For now, it still looks like an upward correction and the Nikkei is relatively weak, as it remains below the October - November local lows:
The S&P 500 index broke above its short-term consolidation two weeks ago, as investors reacted to the Fed's Rate Decision release. Is this a new medium-term uptrend or still just upward correction before another medium-term leg lower? The market continues to trade close to the 61.8% Fibonacci retracement of the whole medium-term decline. There have been no confirmed negative signals so far. But we still can see some short-term technical overbought conditions.
Concluding, the S&P 500 index will likely open higher today. We may see some more short-term consolidation following Thursday's decline. For now, it looks like a downward correction within an over month-long uptrend.
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Paul Rejczak Stock Trading Strategist Sunshine Profits - Effective Investments through Diligence and Care
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