Friday's trading session was pretty uneventful, as investors continued to hesitate following early May move up. Is this over week-long consolidation a topping pattern or just some relatively flat correction before another leg up? Investors' sentiment improved following the U.S. - China trade talks, but there are still two possible medium-term scenarios.
The main U.S. stock market indexes were mixed between -0.4% and 0.0% on Friday, as investors continued taking profits off the table following early May rally. The S&P 500 index remains above 2,700 mark, and it currently trades 5.8% below January 26 record high of 2,872.87. The Dow Jones Industrial Average was unchanged and the technology Nasdaq Composite lost 0.4% on Friday.
The nearest important level of resistance of the S&P 500 index remains at around 2,720-2,725, marked by last Tuesday's daily gap down of 2,718.59-2,725.47, among others. The next resistance level is at 2,740-2,750, marked by mid-March local high. On the other hand, support level is at around 2,700-2,710, marked by previous Thursday's daily gap up of 2,701.27-2,704.54 and recent daily lows. The support level is also at 2,680-2,685, marked by previous resistance level.
The broad stock market extended its short-term uptrend in the beginning of the month, as the S&P 500 index broke above the level of 2,700 again. Stocks lost some ground on Tuesday a week ago, but it didn't look like a new downtrend. Since then, the market traded within a consolidation. So, will the run-up continue towards 2,800? There are still two possible medium-term scenarios - bearish that will lead us below February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or breakout towards 3,000 mark. There is also a chance that the market will just go sideways for some time, and that would be positive for bulls in the long run (some kind of an extended flat correction):
Positive Expectations, but What's Next?
The index futures contracts trade 0.6-0.9% higher vs. their Friday's closing prices, as investors react to the U.S. - China trade talks. So, expectations before the opening of today's trading session are positive. The European stock market indexes have gained 0.6-0.7% so far. There will be no new important economic data announcements today. The broad stock market will probably extend its week-long fluctuations following higher open at 9:30 a.m. There have been no confirmed negative signals so far. It looks like a flat correction within an uptrend. However, if the index doesn't break above its recent local high pretty soon, we could see some more profit-taking action.
The S&P 500 futures contract trades within an intraday consolidation, following overnight move up. The nearest important level of resistance is at around 2,730-2,735, marked by local high. The next resistance level is at 2,740, among others. On the other hand, support level is at 2,715-2,720, marked by Friday's fluctuations. The support level is also at 2,700-2,705. The futures contract trades along its recent local highs, as we can see on the 15-minute chart:
Nasdaq Above 6,900 Again
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after opening higher vs. its Friday's closing price. The market fluctuates after bouncing off 7,000 mark a week ago. Is this just downward correction or a topping pattern ahead of downward reversal? It's hard to say. However, tech stocks remain relatively close to their all-time highs. The nearest important support level of the Nasdaq 100 futures contract is at around 6,900, and the next support level is at 6,850-6,870, marked by local lows. On the other hand, resistance level remains at 6,940-6,960, among others. The Nasdaq futures contract extends its short-term triangle pattern, as the 15-minute chart shows:
Apple, Amazon Still Going Sideways
Let's take a look at Apple, Inc. stock (AAPL) daily chart. It reached new record high more than a week ago on Friday, as it extended its short-term uptrend. The price bounced off resistance level of around $190-200 and since then, it trades within a consolidation. Is this a topping pattern? There have been no confirmed negative signals so far:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high in late April, as investors reacted to better-than-expected quarterly earnings release. Then, on the same trading day it sold off below $1,600. Was this a downward reversal or just correction following breakout higher? The recent price action looked pretty bullish, as price got back closer to all-time high level. However, the stock retraced some of its recent advance on last week's Tuesday. We may see some more short-term uncertainty following late April rally:
Dow Jones Remains Slightly Below 25,000 Mark
The Dow Jones Industrial Average broke above its medium-term downward trend line recently. Then it continued higher above a few-week-long downward trend line. The blue-chip index bounced off resistance level of 25,000 a week ago, and then it retraced some of its recent advance. It continued to fluctuate relatively close to resistance level. Topping pattern or just flat correction? It looks like a correction:
The broad stock market reached the highest since March 21 on Monday a week ago, following S&P 500 index breakout above 2,700 mark, but it retraced some of its recent advance on the next day. Is this a new downtrend or just downward correction? For now, it looks like a correction within an uptrend. The market extends its medium-term fluctuations. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come.
Concluding, the S&P 500 index is expected to open higher today, as investors react positively to weekend's news about the U.S. - China trade talks. However, there are some close resistance levels ahead, and we may see more short-term uncertainty. There have been no confirmed negative signals so far. It still looks like some relatively flat correction within an uptrend.
All essays, research and information found above represent analyses and opinions of Przemyslaw Radomski, CFA and Sunshine Profits' employees and associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Przemyslaw Radomski, CFA and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Radomski is not a Registered Securities Advisor. By reading Przemyslaw Radomski's, CFA reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Przemyslaw Radomski, CFA, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.
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