Stocks extended their short-term uptrend on Friday, as investors' sentiment remained bullish following the recent advances. The S&P 500 index was the highest since the early October. But will the rally continue despite some short-term technical overbought conditions?
The U.S. stock market indexes gained 0.5-0.8% on Friday, as investors' sentiment remained bullish following the recent rally. The S&P 500 index retraced more of its October-December downward correction of 20.2%. The broad stock market's gauge is now just 4.0% below September the 21st record high of 2,940.91. The Dow Jones Industrial Average gained 0.5% and the Nasdaq Composite gained 0.8% on Friday.
The nearest important resistance level of the S&P 500 index is now at 2,850-2,860, marked by the early October local lows. The resistance level is also at around 2,875, marked by October the 10th daily gap down of 2,874.02-2,874.27. On the other hand, the support level is now at 2,800-2,810, marked by the recent resistance level and the daily gap up of 2,798.32-2,799.78. The support level is also at 2,785, marked by the daily gap up of 2,784.00-2,786.73.
The broad stock market retraced all of its December sell-off and it got to the medium-term resistance level of around 2,800-2,820, marked by the October-November local highs recently. 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 continue above the mentioned previous local highs? There have been no confirmed negative signals so far. The index is at the previously broken two-month-long upward trend line:
Short-Term Consolidation
Expectations before the opening of today's trading session are virtually flat, because the index futures contracts trade between -0.1% and +0.1% vs. their Friday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for the NAHB Housing Market Index release at 10:00 a.m. The broad stock market will likely fluctuate following the recent rally. There have been no confirmed negative signals so far.
The S&P 500 futures contract trades within an intraday consolidation, as it remains close to the short-term local highs. The nearest important level of resistance is now at around 2,835, marked by the short-term local high. On the other hand, the support level is at 2,820-2,825, among others. The futures contract is above an over two-day-long upward trend line, as we can see on the 15-minute chart:
Nasdaq Also Going Sideways
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market rallied more than 1,500 points from December the 26th local low of around 5,820. The nearest important resistance level is now at 7,350-7,400. On the other hand, the support level is at 7,300-7,320, marked by the recent resistance level. The Nasdaq futures contract remains close to the short-term local high this morning, as the 15-minute chart shows:
Big Cap Tech Stocks Trending Higher
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market broke above its recent local highs a week ago and then it broke slightly above the $180 level. The next resistance level is at $190-200. There have been no confirmed negative signals so far:
Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The market retraced its recent decline last week and then it reached the resistance level of $1,700-1,750. The market is now above the previously broken downward trend lines. However, it continues to trade along the medium-term local highs:
Dow Jones Still Relatively Weak, Below its February High
The Dow Jones Industrial Average retraced some of its recent decline last week, following bouncing off the support level of around 25,000-25,500. For now, it looks like an upward correction. However, if the blue-chip stocks' gauge breaks above the 26,000 level, we could see more buying pressure:
Nikkei Also Below the Previous High
Let's take a look at the Japanese Nikkei 225 index. It accelerated the downtrend in late December, as it fell slightly below the 19,000 level. 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 bounced off the 21,000 mark again:
The S&P 500 index extended its short-term uptrend on Friday, as it got the highest since October the 10th. The market came back to the previously broken two-month-long upward trend line. So will it act as a resistance level? We could see some short-term uncertainty, as stocks reach their previous medium-term highs.
Concluding, the S&P 500 index will likely open virtually flat today. Then we may see some short-term fluctuations following the recent rally. There have been no confirmed negative signals so far.
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Paul Rejczak Stock Trading Strategist Sunshine Profits - Effective Investments through Diligence and Care
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