S&P 500 At Resistance Level, Downward Correction Ahead?

The U.S. stock market indexes gained 0.2-0.6% on Wednesday, extending their short-term uptrend, as investors' sentiment remained bullish ahead of the quarterly earnings releases. The S&P 500 index continued its rebound off the December the 26th medium-term low of 2,346.58. The index traded 20.2% below September the 21st record high of 2,940.91 on that day. Then the market rallied and retraced almost 50% of the downtrend. It broke slightly above 2,600 mark on Tuesday. The Dow Jones Industrial Average gained 0.6% and the Nasdaq Composite gained 0.2% yesterday.

The nearest important level of resistance of the S&P 500 index is at 2,635-2,640, marked by December the 14th daily gap down of 2,635.07-2,637.27. There is also a resistance level of 50% retracement of the whole downtrend from the mentioned September's record high at 2,643.7. The next resistance level is at 2,675-2,685, marked by the early December local highs. On the other hand, the level of support is at 2,580-2,600, marked by the recent resistance level. The support level is also at 2,550-2,570.

The broad stock market broke below its two-month-long trading range in the mid-December, as the S&P 500 index fell below the level of 2,600. Then the market accelerated lower and it broke below the level of 2,400. The downward correction reached 20.2% from the September all-time high, surpassing January-February correction of around 12%. Is this a long-term bear market? It still looks like a medium-term downward correction. And the index retraces almost 50% of its December sell-off, as we can see on the daily chart:

(Click on image to enlarge)

Slightly Negative Expectations

The index futures contracts trade 0.2-0.3% below their yesterday's closing prices. So expectations before the opening of today's trading session are negative. The European stock market indexes have lost 0.3-0.5% so far. Investors will wait for some economic data announcements today: Philadelphia Fed Manufacturing Index, Initial Claims at 8:30 a.m. Investors will also wait for more quarterly corporate earnings releases. The broad stock market will likely fluctuate following the recent advance. If the index breaks below 2,600 mark, we could see some more profit-taking action.

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Disclosure: None.

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