Stocks – Is It Time To Get Defensive Again?

Stocks extended their Friday’s rally yesterday, as the S&P 500 index broke above the 4,500 level. Is this still just an upward correction?

The S&P 500 index gained 1.89% on Monday, as it extended its Friday’s gains and broke above the 4,500 level. It retraced more of its recent declines after breaking above the last week’s consolidation along the 4,300-4,400. On last Monday’s low of 4,222.62, the market was 596 points or 12.4% below the Jan. 4 record high of 4,818.62. And yesterday it reached the new local high of 4,516.89. It still looks like an upward correction within a downtrend, however, the market may be also trading within a new uptrend.

Late December – early January consolidation along the 4,800 level was a topping pattern and the index retraced all of its December’s record-breaking advance. On Friday it broke above a steep short-term downward trend line. This morning the S&P 500 index is expected to open 0.3% higher following an overnight consolidation.

The nearest important resistance level is now at 4,500-4,550, marked by the previous local lows. The resistance level is also at 4,600. On the other hand, the support level is at 4,400-4,450, marked by the recent resistance level. The S&P 500 is now back above its early December local low, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

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Apple Rallies Again

Recently, Apple stock fluctuated along with the support level of $155.0-157.5 following the mid-January downtrend ahead of its quarterly earnings release. The stock reversed the downtrend after breaking above a short-term consolidation and since the earnings release, it gained more than 10%. The resistance level is at around $180.0-183.0, marked by the Jan. 4 record high of $182.94.

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Conclusion

The S&P 500 index extended its Friday’s advance yesterday and it broke slightly above the 4,500 level. It still looks like an upward correction following mid-January declines and a rebound within a new medium-term downtrend.

Stocks may further extend their uptrend, but there’s a risk of a short-term downward reversal. Today the index is expected to open 0.3% higher, and we may see some uncertainty and consolidation along with the 4,500 level. The market will be waiting for the quarterly earnings releases (AMD, Alphabet today after the session’s close, Meta tomorrow, and Amazon on Thursday, among others) and Friday’s monthly jobs data announcement. There is still uncertainty concerning Russia-Ukraine tensions.

We decided to close our profitable long position that was opened on Tuesday, Jan. 25 at the 4,335 level - S&P 500 continuous futures contract. The details of that position (stop-loss and profit target levels) were available for our subscribers in the premium Stock Trading Alerts.

Here’s the breakdown:

• The S&P 500 broke above the 4,500 level again; it still looks like an upward correction.
• We decided to close our speculative long position from last Tuesday (4,335 level) at the opening of today’s cash market’s trading session – a gain of around 175 index points. In our opinion, no positions are currently justified from the risk/reward point of view.