The U.S. stock market indexes gained 0.4-0.9% on Wednesday, extending their short-term uptrend again, as investors' sentiment remained bullish following last week's better-than-expected monthly jobs data release. The S&P 500 index continued its recent rebound off the December the 26th medium-term low of 2,346.58. It traded 20.2% below September the 21st record high of 2,940.91 on that day. Then the market rallied and retraced some of the downtrend. It got back above 2,500 mark on Friday and then it got very close to 2,600. The Dow Jones Industrial Average gained 0.4% and the Nasdaq Composite gained 0.9% yesterday.
The nearest important level of resistance of the S&P 500 index is now at 2,600, marked by the previous local lows. The resistance level is also at 2,635-2,640, marked by December the 14th daily gap down of 2,635.07-2,637.27. On the other hand, the level of support is at 2,550-2,570, and the next support level remains at 2,500, marked by some recent local highs.
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 level of 2,400. The downward correction reached 20.2% from the September all-time high, surpassing January-February correction of around 12%. Is this a long-term bear market? It still looks like a medium-term downward correction, but the index remains slightly below the October-December consolidation, as we can see on the daily chart:
Short-Term Downward Correction?
Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.4-0.6% below their Wednesday's closing prices. The European stock market indexes have lost 0.2-0.8% so far. Investors will wait for the Initial Claims number release at 8:30 a.m. There will also be a speech from the Fed Chair Powell at 12:45 a.m. The broad stock market may retrace some of its recent rally. The index got closer to the resistance level of 2,600 and we may see some profit-taking action.
The S&P 500 futures contract trades within an intraday consolidation following an overnight decline. The nearest important level of support is now at around 2,545-2,550, marked by the recent local lows. On the other hand, the resistance level is at 2,580-2,600. The futures contract is now below its short-term upward trend line, as the 15-minute chart shows:
Nasdaq Also Lower
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It broke above to the level of 6,600 yesterday, but then it failed to continue higher and got back below that resistance level. It gained more than 800 points from December the 26th local low of around 5,820 and we can see some technical overbought conditions. However, the Nasdaq futures contract remains close to the short-term upward trend line, as we can see on the 15-minute chart:
Apple, Amazon - Short-Term Uptrend
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock sold off on Thursday a week ago, as it reached the new medium-term low of $142. We saw clear short-term oversold conditions and the stock retraced some of its recent decline on Friday. However, there have been no confirmed positive signals so far. But it is above the month-long downward trend line again:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The stock accelerated its downtrend in the late December and it reached the new medium-term low of $1,307. Since then it was consequently advancing. On Tuesday the market reached its three-month-long downward trend line. We may see an attempt at breaking higher:
Dow Jones Closer to 24,000 Mark
The Dow Jones Industrial Average broke below its two-month-long consolidation in the mid-December and then it accelerated much lower. The blue-chip stocks' gauge fell below the level of 22,000. It slightly extended the downtrend recently before sharply reversing higher and getting back closer to 24,000 mark. So was it an upward reversal or just a correction within a downtrend? The market is now slightly below its October - December trading range:
Japanese Nikkei - New Uptrend or Just Rebound?
Let's take a look at the Japanese Nikkei 225 index. It accelerated the downtrend in the late December, as it fell slightly below the level of 19,000. Since then it traded within a consolidation. Early this week we saw an advance above the level of 20,000. For now, it looks like an upward correction:
The S&P 500 index extended its downtrend in the late December, before reversing higher. The broad stock market was more than 20% below its September's record high on December the 26th. Is this a new long-term bear market or just medium-term downward correction? For now, it looks like a correction. However, there have been no confirmed medium-term positive signals so far. The market retraced some of its recent decline, but it continues to trade below the important resistance levels.
Concluding, the S&P 500 index will likely open lower today. The market may retrace some of its short-term uptrend and we may see a profit-taking action. Investors will wait for the mentioned speech from the Fed Chair Powell later in the day.
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Paul Rejczak
Stock Trading Strategist
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