S&P500 At Cliff’s Edge Again

August 26, 2019

Friday’s trading session was very bearish, as the stock market reacted to a series of negative U.S. – China trade war news. The S&P500 index got back close to the recent local lows. Will stocks rebound off a support level?

The U.S. stock market indexes lost 2.4-3.0% on Friday, as investors reacted to the negative U.S. – China trade war news. The S&P500 Index retraced almost all of its recent advance and it got back to its short-term local lows. The broad stock market’s gauge is now 6.0% below July the 26th record high of 3,027.98. The Dow Jones Industrial Average lost 2.4% and the Nasdaq Composite lost 3.0% on Friday.

The nearest important resistance level of the S&P 500 index is now at 2,850-2,870, marked by the recent support level. On the other hand, the support level is at 2,820-2,825, marked by the previous lows.

The broad stock market broke below its two-month-long upward trend line in early August, and then it quickly retraced most of the June-July advance. The S&P 500 index is close to the local lows right now. It still looks like a consolidation following the January-February advance. However, it could also play out as a long-term topping pattern ahead of a more meaningful downward correction:

Positive Expectations, Just Upward Correction?

The index futures contracts trade 0.5-0.7% higher vs. their Friday’s closing prices. So expectations before the opening of today’s trading session are positive. The European stock market indexes have gained 0.4-0.6% so far. Investors will wait for the Durable Goods Orders number release at 8:30 a.m. There will also be a speech from the FOMC Member Bullard at 10:00 a.m.

The S&P 500 futures contract trades within an intraday consolidation following overnight advance. The market extended its short-term downtrend, before retracing some of its Friday’s sell-off. The nearest important resistance level is at 2,880-2,900. On the other hand, the support level is at 2,840-2,850. The futures contract got back closer to the 2,900 mark this morning, as the 15-minute chart shows:

Nasdaq 100 Also Bouncing

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after bouncing off a new short-term low. It bounced off a support level of 7,350-7,400 again. And the nearest important resistance level is now at around 7,600-7,650. The Nasdaq futures contract remains below its last week’s short-term consolidation, as we can see on the 15-minute chart:

Tech Stocks’ Sell-off

Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock sharply reversed its recent upward course on Friday, as it fell closer to the $200 price again. The market may extend its volatile fluctuations following the early August breakdown below its two-month-long upward trend line:

Now let's take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock retraced most of its recent advance on Friday, as it fell to a support level of $130-135 again. It still looks like a consolidation within a medium-term uptrend. However, the price remains below its recently broken trend line:

Dow Jones at 200-day Moving Average Again

The DJIA broke below its upward trend line in late July. Then it fell to around 25,500, before bouncing off the 200-day moving average. It kept bouncing off that support level recently. On Friday the Dow fell to its average yet again. If it breaks lower, we could see more selling pressure:

The S&P 500 index broke below the upward trend line in late July, as investors reacted to the Fed’s Rate Decision release, among other factors. We saw technical overbought conditions along with negative technical divergences then. And the market declined following renewed trade war fears. Recently it was rebounding off a support level of around 2,800-2,820. On Friday it reached that support level again. So it is on a brink of either bouncing off a support level again or breaking below it.

Concluding, the S&P 500 index will likely open higher today. The market may retrace some of its Friday’s news-driven sell-off. However, there have been no confirmed short-term positive signals so far.

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Paul Rejczak

Stock Trading Strategist

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' 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, Paul Rejczak 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. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s 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. Paul Rejczak, 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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Paul Rejczak is a stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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