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.

The S&P 500 index extended its uptrend once again yesterday, but the sentiment turned bearish after hours. Is this a short-term topping pattern?

The broad stock market index gained 0.94% on Wednesday after breaking above the 4,550 level. On the previous 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 4,595.31, and today it is expected to open 1.3% lower following worse than expected quarterly earnings release from Meta (Facebook).

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 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 – Short-Term Consolidation

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 on Tuesday 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 Tuesday’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 yesterday, but this morning we will likely see a correction following the earnings release from Meta. Will it lead to a deeper correction of the recent rally? For now, it looks like a consolidation or a relatively flat correction within a short-term uptrend.

The market will be waiting for today’s quarterly earnings release from Amazon and the tomorrow’s important monthly jobs data announcement. There is still an uncertainty concerning Russia-Ukraine tensions.

Here’s the breakdown:

• The S&P 500 is will likely retrace some of its recent rally this morning; for now it looks like a consolidation.
• On Tuesday we closed our profitable long position that was opened a week earlier, on 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