Topping Pattern Or Just Quick Correction Before Another Leg Up?

The U.S. stock market indexes lost 0.1-0.4% on Wednesday, retracing some of their recent advance, as investors took short-term profits off the table. The S&P 500 index broke above its short-term consolidation on Wednesday a week ago and it continued higher. The market is above the 61.8% Fibonacci retracement of its October-December downward correction of 20.2% (2,713.88). It has gained 390 points from the late December medium-term low, but it is still around 200 points below the September 21st record high of 2,940.91. The Dow Jones Industrial Average lost 0.1% and the Nasdaq Composite lost 0.4% on Wednesday.

The nearest important resistance level of the S&P 500 index remains at 2,750-2,760, marked by some previous local highs. The resistance level is also at 2,800, marked by the early December 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 the S&P 500 index fell 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 gets closer to its October-November local highs and the resistance level of 2,800, as we can see on the daily chart:

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

 

Negative Expectations, Correction or a Reversal?

Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.6% below their yesterday's closing prices. The European stock market indexes have lost 0.1-1.2% so far. Investors will wait for the Initial Claims number release at 8:20 a.m. The broad stock market will likely extend its short-term downward correction and we may see some more profit-taking action.

The S&P 500 futures contract trades within an intraday downtrend, following a breakdown below the short-term trading range. as it fluctuates following yesterday's advance. The nearest important resistance level is now at around 2,720, marked by the recent local lows. The resistance level is also at 2,730-2,735. On the other hand, the support level is at 2,700-2,710, among others. The futures contract remains below the recent upward trend line, as the 15-minute chart shows:

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Disclosure: None.

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