Stock prices fluctuate following their last week’s rally. Is this just a pause before another leg up or a short-term topping pattern?

The S&P 500 index lost 0.75% on Wednesday, as it retraced its Friday’s advance after bouncing from the local high of around 4,150. On Tuesday the broad stock market went sideways following the long holiday weekend, as investors took short-term profits off the table. On May 20 it went to the medium-term low of 3,810.32 and it was 1,008.3 points or 20.9% below the Jan. 4 record high of 4,818.62. So technically, the broad stock market entered a bear market territory. There’s still a lot of uncertainty and worries about inflation data, tightening Fed’s monetary policy, and the Russia-Ukraine conflict. Today, the S&P 500 is expected to open 0.4% higher, so we may see more short-term fluctuations.

The nearest important resistance level is now at around 4,150-4,200, marked by the previous consolidation and the recent local highs. On the other hand, the support level is at around 4,050-4,100. The S&P 500 index broke above its downward trend line recently, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

(Click on image to enlarge)

Futures Contract – Just a Downward Correction?

Let’s take a look at the hourly chart of the S&P 500 futures contract. It reached the 4,200 level on Monday, before retracing more than 100 points from the short-term local high. For now, it looks like a correction within an uptrend. (chart by courtesy of http://tradingview.com):

(Click on image to enlarge)

Conclusion

We will likely see a higher opening of the S&P 500 index this morning. The broad stock market may extend its short-term consolidation. For now, it looks like a flat correction following last week’s rally. Investors will be waiting for tomorrow’s monthly jobs data release and June 15 FOMC’s interest rate decision. This morning we’ve seen a worse than expected ADP Non-Farm Employment Change release.

Here’s the breakdown:

• The S&P 500 index will likely extend its short-term consolidation this morning
• The resistance level remains at around 4,150.