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 extended their short-term uptrend once again yesterday and today we will see another higher opening - is this still just an upward correction?

The S&P 500 index gained 0.69% on Tuesday, Feb. 1, following its Monday’s rally of 1.9% and a breakout above the 4,500 level. The broad stock market’s gauge retraced more of the recent sell-off after breaking above the last week’s consolidation along the 4,300-4,400. On last Monday’s low of 4,222.62 the market was 596 points or 12.4% below the Jan. 4 record high of 4,818.62. Yesterday it reached the new local high of 4,550.49, and today it is expected to open 0.7% higher following better than expected quarterly earnings releases from Alphabet and AMD.

It still looks like an upward correction within a downtrend, however, the market may be also trading within a new uptrend. Late December – early January consolidation along the 4,800 level was a topping pattern and the index retraced all of its December’s record-breaking advance. On Friday it broke above a steep short-term downward trend line.

The nearest important resistance level is now at 4,600 and the next one is at 4,650-4,700, marked by the previous consolidation. On the other hand, the support level is at 4,500. The S&P 500 remains above its December local lows, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract – We Closed Our Profitable Long Position

Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above the short-term downward trend line on Friday and yesterday it broke the resistance level of 4,520, marked by the previous local lows. There have been no confirmed short-term negative signals so far. However, we can see some technical overbought conditions and the market may be poised for a correction at some point.

We closed our profitable long position at the opening of the yesterday’s cash market’s trading session, at the 4,512 price level. Overall, we gained 177 index points on that position in a week! (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index extended its advance above the 4,500 level yesterday. The broad stock market is expected to open higher again this morning and we may see a profit taking action at some point. It still looks like an upward correction following mid-January declines and a rebound within a new medium-term downtrend.

Stocks may further extend their uptrend, but there’s a risk of a short-term downward reversal. Today the index is expected to open 0.7% higher. The market will be waiting for more quarterly earnings releases (Meta after the session’s close today, Amazon tomorrow, among others) and Friday’s monthly jobs data announcement. There is still an uncertainty concerning Russia-Ukraine tensions.

Here’s the breakdown:

• The S&P 500 is expected to open 0.7% higher today, but that may mark a short-term high; there may be some profit taking action.
• Yesterday, we closed our profitable long position that was opened on Tuesday, Jan. 25 at the 4,335 level - S&P 500 continuous futures contract – a gain of around 177 index points. 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