The U.S. stock market indexes gained 0.2-0.6% on Wednesday, as investors' sentiment reversed following lower open. The S&P 500 index got close to its recent local highs and it currently trades 4.9% below January's 26th record high of 2,872.87. The Dow Jones Industrial Average gained 0.2%, and the technology Nasdaq Composite gained 0.6%, as it was relatively stronger than the broad stock market yesterday.
The nearest important level of resistance of the S&P 500 index remains at around 2,740-2,750, marked by recent local highs along with mid-March local high. On the other hand, support level is at around 2,720, marked by Monday's daily gap-up of 2,719.50-2,725.70. The support level is also at 2,700-2,710, marked by previous daily gap-up of 2,701.27-2,704.54 and recent daily lows.
The broad stock market extended its short-term uptrend in the beginning of the month, as the S&P 500 index broke above the level of 2,700. Stocks lost some ground a week ago, but it didn't look like a new downtrend. Since then, the market traded within consolidation. So, will the run-up continue towards 2,800? There are still two possible medium-term scenarios - bearish that will lead us below February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or breakout towards 3,000 mark. There is also a chance that the market will just go sideways for some time, and that would be positive for bulls in the long run (some kind of an extended flat correction):
Mixed Expectations, Uptrend to Continue?
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 Wednesday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements this morning: Initial Claims at 8:30 a.m., Existing Home Sales at 10:00 a.m. The broad stock market may extend its fluctuations along recent local highs today. If the index breaks above the resistance level of around 2,740, we could see more buying pressure.
The S&P 500 futures contract trades within an intraday uptrend following a breakout above yesterday's local high. The nearest important level of resistance is at around 2,735-2,740, marked by recent local highs. Potential resistance level is also at 2,750. On the other hand, support level is at 2,715-2,720. The next level of support remains at 2,700-2,705. The futures contract trades close to its two-day-long upward trend line, as the 15-minute chart shows:
Nasdaq Extends Uptrend
The technology Nasdaq 100 futures contract follows a similar path, as it extends its yesterday's rise. The market sold off towards the level of 6,800 yesterday, before reversing its intraday downtrend and closing slightly above the level of 6,950. Is this a new uptrend? It's still hard to say. Tech stocks retraced their short-term decline, but they remain within consolidation. The nearest important level of resistance is at around 7,000. On the other hand, support level is at 6,900-6,930, among others. The Nasdaq futures contract trades along its recent local highs, as we can see on the 15-minute chart:
Apple, Amazon - Closer to Breakout?
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached new record high two weeks ago, as it extended its short-term uptrend. The price bounced off resistance level of around $190-200 and since then it trades within a consolidation. Is this a topping pattern? There have been no confirmed negative signals so far:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high of $1,638.10 in late April and on the same trading day it sold off below $1,600. Was this a downward reversal or just a correction following breakout higher? Since then, the stock traded within a consolidation. Yesterday's price action looked pretty bullish, as price bounced following a lower open:
Dow Jones Continues Sideways
The Dow Jones Industrial Average broke above its medium-term downward trend line recently. Then it continued higher above a few-week-long downward trend line. The blue-chip index bounced off resistance level of 25,000 more than a week ago, and then it retraced its recent advance. Monday's trading session was bullish as Dow Jones broke above its recent local high and closed at 25,000 mark, but it failed to continue higher and went back lower. On Tuesday we saw negative bearish engulfing candlestick pattern, but the market may bounce back following yesterday's intraday reversal:
The broad stock market reversed its intraday decline yesterday, before closing slightly higher. Was it an upward reversal or just another move up within two-week-long consolidation? It's hard to say. If the S&P 500 index breaks above the resistance level of 2,740, we could see continuation higher. There have been no confirmed negative signals so far. However, just like we wrote in our several Stocks Trading Alerts, the early February sell-off sets a negative tone for weeks or months to come.
Concluding, the S&P 500 index will likely open slightly higher today. It is closer to breaking above its short-term consolidation, but we may see some more uncertainty along two-week-long resistance level.
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Paul Rejczak
Stock Trading Strategist
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