Having opened with a sizable gap, stocks scored sizable gains yesterday. The reversal higher makes one think that we've seen a bullish turn. And the short-term outlook has certainly turned more to the bullish side of the spectrum. Let's assess what the recent market developments mean for stocks' technical outlook.

We'll start by looking at the current week in progress (charts courtesy of http://stockcharts.com).

Yesterday's close means that the bulls have moved all the way to the upper border of last week's sizable bearish gap. As the S&P 500 futures have cleared the 3300 level in today's premarket trading, the gap ceased to support the sellers.

The weekly indicators are turning higher. That increases the likelihood that the RSI and CCI sell signals will be invalidated before long - and the same goes for Stochastics' sell signal flashed in the overbought area. To be clear, the week is not yet over, and thus the positions of indicators are not that important just yet. We will really know where the weekly indicators moved only after Friday's closing bell, but what we see so far provides us with some indication, nonetheless.

The week isn't over yet, but as the reversal unfolds, let's examine the daily chart. It'll show the effect of monetary stimulus in the face of the evolving coronavirus story. Will China's actions overweigh the economic consequences, helping to drive stock markets across the world higher?

The bulls opened on a strong note yesterday, adding to sizable premarket gains later in the day. While they were rejected at the previously-broken rising blue trend line yesterday, today's premarket trading is marked by another bullish gap. As S&P 500 futures trade at above 3325 currently, the previous breakdown would be invalidated. We'll have to wait for the markets to close to really say that it was indeed the case.

How does the recent action show up in the daily indicators? They have stabilized, and turned higher, with Stochastics even flashing its buy signal. That's certainly a bullish factor. Yesterday's volume was in line with the day before, which means there's little danger of an impending, powerful reversal lower.

But is the coronavirus panic over, or just temporarily quelled by stimulus money? When there's another flare-up in fear (and it's likely we'll get one unless the virus mutates one of these days to become less grave), just how much lower can it take the stock market along?

Looking at the daily chart, does the inflicted economic growth hit and supply chains disruption look to have been absorbed to you? And what about the outlook for corporate profits?

That is why we think the current price level doesn't offer a suitable entry point from the risk-reward point of view. Chasing the upswing would result in an unfavorable risk-reward ratio, especially as the market remains vulnerable to a downside move - or consolidation of recent gains as a minimum.

As a reminder, we are in a stock bull market. The strong comeback highlights that we haven't seen reliable signs of a market top - thus, corrections are to be bought. And there is still a good likelihood of us getting one shortly, regardless of the improvement in the indicators. Therefore, staying on the sidelines remains the right course of action right now.

Summing up, the S&P 500 outlook brightened with yesterday's upswing as the damage done on both the weekly and daily charts is being repaired. We aren't out of the woods yet, though. This week's upswing remains vulnerable to a downside surprise, or gains consolidation as a minimum. We're eyeing a favorable setup to get back in on the long side as the stock bull market is alive and well.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Stock Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones.

We encourage you to sign up for our daily newsletter, too - it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

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Monica Kingsley
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care

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Stocks have opened on a bullish note yesterday, and the bulls have been adding to their gains. Before the closing bell though, much of those gains were lost. Where does it leave the bullish case, and do we already have a reliable one?

It won't certainly hurt to take a look at the bigger picture. We encourage you to read our yesterday's comprehensive analysis if you haven't had the chance to do so already. Let's get right into the charts to examine how this week's price moves are shaping up (charts courtesy of http://stockcharts.com),

Since breaking above the upper border of the rising purple trend channel in November, stocks moved lower in January. Last week's sizable bearish gap remains open, capping potential gains.

Price action has moved close to the rising trend channel's upper border, yet the bulls opened yesterday with a bullish gap. This means that the trend channel's upper border hasn't been tested yet.

Let's recall our yesterday's observations:

(...) The weekly indicators' posture has deteriorated, with both RSI and CCI leaving their overbought territories. While Stochastics has as well issued its sell signal, it's still in the overbought area where signals can lead to frequent whipsaws.

Yesterday's action means that both RSI and CCI are now curling higher, though they haven't invalidated their preceding moves just yet. As a result, caution is warranted.

After yesterday's rout in the Shanghai Composite, the index rose 1.4% in today's trading, supported by the &71bn liquidity injection into China's banking system. As it comes on top of yesterday's stimulus, it has worked to curb the bears' appetite for selling earlier today - also in the US as the S&P 500 futures change hands at around 3280 currently.

Let's assess the short-term situation on the daily chart.

Since stocks opened on Monday, January 27 below the rising blue trend line, the bulls twice verified the breakdown. Unless they close above 3300 in one of the coming sessions, all upswings are nothing more than verifications of the preceding breakdown.

While prices have moved away from the red support zone coupled with the 50-day moving average, we better turn our attention elsewhere. Volume of yesterday's upswing was clearly lower than that of Friday's selloff, which subtly speaks in the bears' favor. While both RSI and CCI moved higher yesterday, Stochastics remains on a sell signal. All the above makes it a risky proposition to call this correction as being over.

There is one more factor speaking against the end of panic selling and that is the potential increase in the coronavirus-related market turmoil. 

That is why the current price level doesn't offer a suitable entry point from the risk-reward point of view. Instead of chasing the upswing of the day, we would be better off leaving the market to digest the Chinese backstop euphoria and absorb the increasing coronavirus fears on the ground as the issue appears far from solved. Technically, this shows in the modest volume of yesterday's move and the above-mentioned position of the daily indicators.

As a reminder, we are in a stock bull market and haven't yet seen reliable signs of a market top - thus, corrections are to be bought. Taking into account the existing deterioration on both the weekly and daily charts, staying on the sidelines remains the right course of action until an opportune entry point on the long side emerges. From the risk-reward perspective, this hasn't happened yet.

Summing up, while the S&P 500 rose yesterday, the bulls still have a way to go in repairing the damage done on both the weekly and daily charts. Positive sentiment carried over from China's market interventions is helping to lift stocks in today's premarket trading, yet not chasing stocks higher is prudent from the risk-reward point of view. That's also the case fundamentally, as the coronavirus panic doesn't appear to have peaked yet. Let's look for more reliable signs of bulls' strength to emerge first. This means that we're eyeing a favorable setup to get back in on the long side as the stock bull market is alive and well, and there's no evidence of a top being in.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Stock Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones.

We encourage you to sign up for our daily newsletter, too - it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Monica Kingsley

Stock Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

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As the markets grapple with the coronavirus story, the stock market is no exception. Jittery and volatile trading is what we've seen on Friday, January 24 already. In the heat of the moment, it's easy to sell first and ask questions later. But times like these call for stepping back and evaluating the technical picture across several timeframes instead.

That's exactly what we'll do, starting with the monthly chart. Before jumping right into the chart to examine what January brought us (charts courtesy of http://stockcharts.com), it's my pleasure to employ my experience and analytical views to your benefit - both within Stock Trading Alerts and Oil Trading Alerts. You can learn more about me by taking a look at my bio.

Let's take a look at what January brought us (charts courtesy of http://stockcharts.com).

Since breaking above their pre-Great Recession highs back in 2013, S&P 500 has been trading solidly higher. Price action has been confined within the rising blue trend channel. While the long-term stock market bull has been punctured by sideways trading and an occasional sharp correction, prices have continued making new highs.

While January closed with a shooting star, there is no sign of a market top being in just yet. But as shooting stars belong among reversal patterns, caution is warranted. Higher January volume also highlights the possibility of more downside action to come.

The monthly indicators though support uptrend continuation, and so do the rising moving averages. While it's true that Stochastics just flashed its sell signal, it happened in its overbought territory. And that's an area where acting on such signals leads to frequent whipsaws. That's why some traders prefer to wait for Stochastics to leave overbought territory first, and act on its buy signals only then. All in all, the monthly indicators continue to point in the direction of new highs to be made down the road.

Let's assess the weekly perspective now.

The first thing that catches the eye, is the November 2019 breakout above the upper border of the rising purple trend channel. Since retesting its lower border in September, stocks haven't looked back and marched higher.

But two weeks ago, the bulls couldn't keep their gains any more. Stocks ended lower, yet still within spitting distance of previous highs. Last week's open marked by the sizable bearish gap that the bulls couldn't close later in the week, showed clear deterioration. Prices reversed lower, and the bears finished the week on a strong note near the weekly lows.

Additionally, the rising trend channel's upper border is near, and this week will provide more clues as to whether stocks test it, break below it, or reverse higher.

The weekly indicators' posture has deteriorated, with both RSI and CCI leaving their overbought territories. While Stochastics has as well issued its sell signal, it's still in the overbought area where signals can lead to frequent whipsaws.

Such accelerating price action spells caution. Earlier today, the Chinese markets opened after being closed the whole previous week, as their New Year holidays are over. Their selloff was feared to be much steeper than the 7.7% Shanghai Composite fell, and the $174bn liquidity injection pledge by the Chinese government certainly helped in achieving that outcome. Following these developments, S&P 500 futures are trading slightly higher at around 3240 as we speak.

We'll be closely watching the situation - the most likely scenario currently appears to be selloff's continuation.

Let's finetune the short-term picture with the daily chart.

Having opened last Monday below the rising blue trend line, the bulls tried hard to invalidate the breakdown below it. They failed, and prices rolled over to the downside. This way, the preceding upswing was nothing more than verification of the preceding breakdown.

Friday's downswing happened on high volume, pointing to further likely decline. The daily indicators are approaching their oversold territory, and more deterioration is a distinct possibility. Stochastics just invalidated its earlier buy signal - but this signal alone wasn't to be taken on its face value and acted upon in the absence of more signs pointing to the bulls' strength.

The red support zone coupled with the 50-day moving average could provide some help to the bulls. On Friday, it has stopped the decline as seen in the candle's lower shadow.

As we are in a bull market and haven't yet seen reliable signs of a market top, corrections are to be bought. Taking into account the deterioration on both weekly and daily charts, staying on the sidelines is the right course of action until an opportune entry point on the long side emerges. From the risk-reward perspective, this hasn't happened yet.

Summing up, the S&P 500 ran into serious headwinds last week, and has powerfully rolled over to the downside. The supports on both the weekly and daily charts are close, and withstood the first test in Friday's selling. The short-term picture has deteriorated though as evidenced by both the weekly and daily indicators. After being closed for the whole week, China's markets have declined less than feared, translating into the S&P 500 futures trading modestly higher before the US market open. From the risk-reward perspective, it's prudent to stay on the sidelines and look for reliable signs of bulls' strength to emerge. This means that we're eyeing a favorable setup to get back in on the long side as the stock bull market is alive and well. The strong monthly chart shows no hint of a top being made.

If you enjoyed the above analysis and would like to receive daily premium follow-ups, we encourage you to sign up for our Stock Trading Alerts to also benefit from the trading action we describe - the moment it happens. The full analysis includes more details about our current positions and levels to watch before deciding to open any new ones or where to close existing ones. We encourage you to sign up for our daily newsletter, too - it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care

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Wednesday's trading session was bullish, as stocks retraced their Tuesday's decline and got close to the recent local highs again. Will the S&P 500 index break higher today?

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