Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

Stocks retraced some more of their recent declines on Tuesday. Will the market continue higher following today’s consumer inflation data?

The S&P 500 index gained 0.92% yesterday, as it got back above the 4,700 level. The broad stock market’s gauge extended its advance following Monday’s upward reversal from the local low of 4,582.24. It was a dip-buying opportunity, however the short-term advance still looks like an upward correction within a new downtrend. The broad stock market continues to trade within an over two-month long consolidation. Late December – early January consolidation along the 4,800 level was a topping pattern and the index fell to its previous trading range.

On Dec. 3 the index fell to the local low of 4,495.12 and it was 5.24% below the previous record high. So it was a pretty mild downward correction or just a consolidation following last year’s advances.

The nearest important resistance level is at 4,700-4,720 and the next resistance level is at around 4,750. On the other hand, the support level is at 4,650. And the important support level is now at 4,580-4,600, marked by Monday’s daily low. The S&P 500 is close to its November-December local highs again, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Apple Bounced From the $170 Price Level

Last week, Apple stock broke below its two-month long upward trend line after reaching the new record high of $182.94 on Tuesday. So far, it looks like a downward correction and the nearest important support level is at $165-170, marked by the previous highs and lows. The stock trades within an over month-long consolidation of around $170-180.

Is this a medium-term topping pattern? It’s getting very hard to fundamentally justify the Apple’s current market capitalization of around $3 trillion.

Futures Contract Keeps Rallying Back

Let’s take a look at the hourly chart of the S&P 500 futures contract. It reached the new record high last week before reversing the upward course and getting back below the support level of 4,740. The market retraced most of its late December rally on Monday before bouncing back higher. This morning it gets back to the 4,740 level again. In our opinion no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index is expected to open 0.4% higher this morning following the Consumer Price Index release which was slightly higher than expected at +0.5% m/m. So the broad stock market will retrace more of the recent declines. However, we may see a profit taking action later in the day.

Here’s the breakdown:

• The S&P 500 extended its short-term uptrend yesterday. It may be still a correction within a downtrend or some further consolidation along the 4,700 level.
• In our opinion no positions are currently justified from the risk/reward point of view.

As always, we’ll keep you, our subscribers, well-informed.

Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

Thank you.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care