Positive Expectations, Breakout Imminent?

April 1, 2019

Stocks broke above their short-term consolidation on Friday and they got close to the recent local high. The S&P 500 index was the highest since the early October more than a week ago. But then the market traded within a consolidation. Will the uptrend resume today?


Intraday trade: The S&P 500 gained 0.7% on Friday, after opening 0.5% higher. The market will probably open higher again today. We may see an attempt at breaking above the short-term local high.

Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.

Our short-term outlook is neutral, and our medium-term outlook is neutral:

Short-term outlook (next 1-2 weeks): neutral

Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes gained 0.7-0.8% on Friday, breaking above their week-long consolidation, as investors’ sentiment improved following better-than-expected economic data releases. The S&P 500 index retraced more of its October-December downward correction of 20.2% recently. The broad stock market's gauge traded just around 3% below September the 21st record high of 2,940.91. But then it fell close to the 2,800 mark again. Today, we may see an attempt at extending the medium-term uptrend. Both the Dow Jones Industrial Average and the Nasdaq Composite gained 0.8% on Friday.

The nearest important resistance level of the S&P 500 index is now at 2,845-2,860, marked by the short-term local highs. The next resistance level is at 2,900. On the other hand, the support level is now at around 2,820, marked by Friday’s daily low. The support level is also at 2,800-2,810, marked by the recent resistance level and the daily gap up of 2,798.32-2,799.78.

The broad stock market retraced all of its December sell-off and it broke above the medium-term resistance level of around 2,800-2,820, marked by the October-November local highs recently. So is it still just a correction or a new medium-term uptrend? The market broke above the 61.8% Fibonacci retracement of the 20% decline. And we may see an attempt at getting back to the record highs. But will the index continue much higher above the mentioned previous local highs? Previous Friday's trading session cast some doubts on bulls' power. However, there have been no confirmed negative medium-term signals so far. The index bounced off the previously broken two-month-long upward trend line:

Very Positive Expectations

Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.7-0.8% above their Friday's closing prices. The European stock market indexes have gained 0.6-0.9% so far. Investors will wait for some important economic data announcements today: Retail Sales at 8:30 a.m., ISM Manufacturing PMI, Business Inventories, Construction Spending at 10:00 a.m. The broad stock market will likely continue its Friday’s rally. We may see an attempt at breaking above the recent local high of around 2,860.

The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following an overnight advance. The nearest important resistance level is at around 2,860-2,865. On the other hand, the support level is at 2,845-2,850. The futures contract remains above its three-day-long upward trend line this morning, as we can see on the 15-minute chart:

Nasdaq Closer to 7,500 Again

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market rallied more than 1,700 points from December the 26th local low of around 5,820. But then it fell more than 250 points from the local high of around 7,540. Today, it is close to 7,500 mark again. The nearest important resistance level is at 7,500-7,550. On the other hand, the support level is at 7,400-7,450. The Nasdaq futures contract continues trading slightly below the 7,500 level, as the 15-minute chart shows:

Apple, Amazon – Short-Term Consolidation

Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market broke above its recent local highs more than a week ago and then it continued above the $180 level. The stock accelerated the uptrend and it traded within a resistance level of $190-200. But then it reversed its upward course. For now, it looks like a correction following the recent advances:

Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The price broke above the $1,800 level recently. However, then it fluctuated slightly below that level. The nearest important support level remains at $1,700-1,750:

Dow Jones Nearing a Breakout

The Dow Jones Industrial Average retraced some of its early March decline recently. The resistance level remains at around 26,000. The blue-chip stocks’ gauge will likely break above the recent trading range today:

Nikkei Also Higher

Let's take a look at the Japanese Nikkei 225 index. It accelerated the downtrend in late December, as it fell slightly below the 19,000 level. Then it was retracing the downtrend for two months. In March the market went sideways. Today, the index got close to 25,000 again. It still looks like a flat correction following the January-February advance:

The S&P 500 index extended its short-term uptrend recently, as it got the highest since October the 10th again. But then the market bounced off the previously broken two-month-long upward trend line. Since then stocks have been going sideways. For now, it looks like a relatively flat correction within a three-month-long uptrend.

Concluding, the S&P 500 index will likely open higher today. The market may break above its recent local high. But first, investors will wait for the mentioned important economic data announcements.

Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.

Paul Rejczak

Stock Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

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