Stocks Move Sideways, It May Be Bullish

Stocks retraced their Wednesday’s advance yesterday. Was this a downward reversal, or just a correction within an uptrend?

The S&P 500 index lost 1.81% on Thursday, Feb. 10 after gaining 1.5% on Wednesday, as investors reacted to a higher-than-expected inflation number release. Investors fear that the rising inflation will lead to a faster tightening by the Fed. On Wednesday the index got close to its previous Wednesday’s local high of 4,595.31, and yesterday it fell to the 4,500 level (the daily low was at 4,484.31). This morning the market will likely open 0.2% higher after an overnight decline. We may see some more short-term uncertainty. For now, it looks like a flat correction or a consolidation within an uptrend from the Jan. 24 local low of 4,222.62.

The nearest important resistance level remains at 4,550-4,600. On the other hand, the support level is at 4,450-4,500. The S&P 500 index is close to the previous Friday’s daily closing price, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

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Futures Contract Trades Along with the 4,500 Level

Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above the short-term downward trend line in late January before rallying up to around the 4,600 level. Since then, it has been fluctuating along with the 4,500 level.

The market remains at the resistance level of its previous local lows, but there have been no confirmed negative signals so far. So in our opinion, no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

(Click on image to enlarge)

Conclusion

The S&P 500 index will likely extend its almost two-week-long consolidation after rallying from the mentioned late January local low. So far, it looks like a consolidation within an uptrend.

The quarterly earnings season is mostly over now, and there is still uncertainty concerning Russia-Ukraine tensions.

Here’s the breakdown:

• The S&P 500 index will likely open slightly higher this morning and we may see more fluctuations along with the 4,500 level.
• In our opinion, no positions are currently justified from the risk/reward point of view.