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Stocks Bouncing, but Will They Resume the Uptrend?


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The U.S. stock market indexes were mixed between -0.3% and +0.1% on Friday, as investors hesitated following the Thursday's decline. The S&P 500 index broke above its short-term consolidation two weeks ago and it continued higher. The market got above the61.8% Fibonacci retracement of its October-December downward correction of 20.2% (2,713.88), but then it retraced some of the advance. TheDow Jones Industrial Averagelost 0.3% and the Nasdaq Composite gained 0.1% on Friday.

The nearest importantresistance levelof the S&P 500 index is at 2,720-2,725, marked byThursday's daily gap down of 2,719.32-2,724.15. The resistance level is also at 2,740, marked by the local high. On the other hand, the support level is at 2,700-2,710, marked by the previous resistance level. The support level is also at 2,650.

The broad stock market broke below its two-month-long trading range in the mid-December, as theS&P 500 indexfell below the level of 2,600. Then the market accelerated lower and it broke below the 2,400 mark. Since then, it has retraced more than 61.8% of the whole decline off the September high. The index got closer to itsOctober-November local highs and the resistance level of 2,800recently, as we can see on the daily chart:

Daily S&P 500 index chart - SPX, Large Cap Index

Positive Expectations, but Will the Rebound Continue?

Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.3-0.4% above their Friday's closing prices. The European stock market indexes have gained 0.5-0.8% so far. There will be no new important economic data announcements today. The broad stock market will likely continue to fluctuate following last Thursday's downward correction.

The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its recent decline. The nearest important resistance level is at around 2,725-2,735, marked by last week's topping consolidation. On the other hand, the support level is at 2,695-2,700, among others. Thefutures contractaccelerated its short-term uptrend this morning, as the 15-minute chart shows:

S&P 500 futures contract - S&P 500 index chart

Nasdaq Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. The market gained over 1,200 points from December the 26th local low of around 5,820 in the recent weeks. And we saw some short-term technical overbought conditions last week. The nearest important resistance level is now at 6,950-7,000. The support level is at 6,900, among others. The Nasdaq futures contractgot closer to the 7,000 mark again, as we can see on the 15-minute chart:

Nasdaq 100 futures contract - Nasdaq 100 index chart

Big Cap Tech Stocks Continue Sideways

Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy ofhttp://stockcharts.com). Apple released its quarterly earnings recently. Then the stock broke above the recent trading range and the resistance level of $155-160. It retraced some more of its November-December sell-off. But on Thursday it bounced off $175, retracing some of the recent advance. For now, it looks like a short-term downward correction:

Daily Apple, Inc. chart - AAPL

Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The market broke above one of its three-month-long downward trend lines a month ago. Since then it has been going sideways. There is a resistance level at around $1,700-1,750. Recently it bounced off that resistance level following quarterly earnings release:

Daily Amazon.com, Inc. chart - AMZN

Dow Jones Above the Broken Downward Trend Line

The Dow Jones Industrial Average extended its short-term uptrend last week after breaking above its medium-term downward trend line. Then it retraced some of the advance as it fell closer to 25,000 level. Will the blue-chip stocks' gauge continue higher and reach its record high again? Or reverse lower in the near term? There have been no confirmed negative signals so far. But there is aresistance level of around 25,500-26,000:

Daily DJIA index chart - DJIA, Blue-Chip Index

Japanese Nikkei Still Relatively Weak

Let's take a look at the Japanese Nikkei 225 index. It accelerated the downtrend in late December, as it fell slightly below the level of 19,000. Since then it has been retracing the downtrend. Recently it got close to 21,000 mark. For now, it still looks like an upward correction and theNikkeiis relatively weak, as it remains below the October - November local lows:

Daily Nikkei 225 index chart

The S&P 500 index broke above its short-term consolidation two weeks ago, as investors reacted to the Fed's Rate Decision release. Is this a new medium-term uptrend or still just upward correction before another medium-term leg lower? The market continues to trade close to the 61.8% Fibonacci retracement of the whole medium-term decline. There have been no confirmed negative signals so far. But we still can see some short-term technical overbought conditions.

Concluding, the S&P 500 index will likely open higher today. We may see some more short-term consolidation following Thursday's decline. For now, it looks like adownward correction within an over month-long uptrend.

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Thank you.

Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care



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About the author


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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