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 downtrend on Friday before closing virtually flat. So was it a reversal or just another upward correction?

The S&P 500 index gained 0.01% on Friday, after falling to the new medium-term low of 3,810.32. The market was 1,008.3 points or 20.9% below the Jan. 4 record high of 4,818.62. So technically, the broad stock market entered a bear market territory. There’s still a lot of uncertainty and worries about inflation data, tightening Fed’s monetary policy and the Russia-Ukraine conflict. This morning the S&P 500 index is expected to open 1.0% higher and we may see an attempt at breaking above the recent local highs along the 3,950 level.

The nearest important resistance level is now at around 3,950-4,000, marked by the recent fluctuations. On the other hand, the support level is at around 3,850-3,800. The S&P 500 index continues to trade below a month-long downward trend line, 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. On Friday it went to the new medium-term low. It was trading close to the 3,800 level. Just like the S&P 500 index, the market keeps trading below its downward trend line.

In our opinion, no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

Conclusion

Stocks will likely open higher this morning, as the S&P 500 index is expected to gain 1.0%. We will likely see an attempt at breaking above the recent local highs. However, it still looks like a short-term consolidation following the recent declines.

Here’s the breakdown:

• The S&P 500 index is expected to open higher following its Friday’s rebound. For now, it looks like a short-term consolidation or a flat correction within a downtrend.
• 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