Stocks are going sideways since last Friday. Will they break higher and go back to the record high? Or the opposite? It still doesn’t look bullish.
The broad stock market index lost 0.16% on Thursday as it fluctuated within a short-term consolidation following last week’s declines. On September 2 the index reached a new record high of 4,545.85. Since then it has lost over 110 points. This morning stocks are expected to open virtually flat again following a pre-session rebound from overnight lows.
The index remains elevated after the recent run-up, so we may see more profound profit-taking action at some point.
The nearest important support level of the broad stock market index is now at 4,435-4,450 and the next support level is at 4,400-4,410. On the other hand, the nearest important resistance level is now at 4,490-4,500, marked by the previous support level. The S&P 500 bounced off its over four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
S&P 500’s Medium-Term Downward Reversal?
The S&P 500 index broke below its medium-term upward trend line a few weeks ago. However, it is still relatively close to the record high. The nearest important support level is at 4,300, as we can see on the weekly chart:
Dow Jones Trades Within a Consolidation
Let’s take a look at the Dow Jones Industrial Average chart. The blue-chip index broke below a potential two-month-long rising wedge downward reversal pattern recently. It remained relatively weaker in August - September, as it didn’t reach a new record high like the S&P 500 and the Nasdaq. The support level is now at around 34,500 and the near resistance level is at 35,000, marked by the recent support level, as we can see on the daily chart:
Apple at Support Level
Apple stock weighs around 6.3% in the S&P 500 index, so it is important for the whole broad stock market picture. Last week it reached a new record high of $157.26. And since then it has been declining. So it looked like a bull trap trading action. On Friday the stock accelerated its downtrend following an unfavorable federal judge's ruling. We can still see negative technical divergences between the price and indicators and a potential topping pattern. The stock is at an over two-month-long upward trend line – it’s a ‘make or break’ situation.
The S&P 500 index continued to trade within a short-term consolidation yesterday. It’s been a week since the market reached the current price levels. So is this a flat correction within a downtrend or some bottoming pattern? Today we will most likely see another flat opening of the trading session – later in the day we may see some more volatility because of a quarterly derivatives expiration known as ‘quadruple witching Friday’.
The market seems overbought, and we may see some more profound downward correction soon. Therefore, we think that the short position is justified from the risk/reward perspective.
Here’s the breakdown:
- The market retraced more of its recent advances this week, as the S&P 500 index extended its decline below 4,450 level.
- Our speculative short position is still justified from the risk/reward perspective.
- We are expecting a 5% or bigger correction from the record high.
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Stock Trading Strategist
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The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.