Stock prices are fluctuating after their rally last week. Is it just a pause before another step or a short term head pattern?
The S&P 500 index lost 0.75% on Wednesday, reversing its advance on Friday after rebounding from the local high of around 4,150. The broad stock market swerved on Tuesday after a long holiday weekend, investors who removed short-term profits from the table. On May 20, it hit the medium-term low of 3,810.32 and was 1,008.3 points or 20.9% below the January 4 high of 4,818.62. So technically, the broader stock market has entered bear market territory. There are still a lot of uncertainties and worries about the inflation data, the Fed’s monetary policy tightening and the Russian-Ukrainian conflict. Today, the S&P 500 is expected to open 0.4% higher, so we may see more near-term swings.
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The nearest important resistance level now sits around 4,150-4,200 marked by previous consolidation and recent local highs. On the other hand, the support level is around 4050-4100. The S&P 500 index broke above its downtrend line recently as we can see from the daily chart (graphic courtesy of http://stockcharts.com):
Futures contract – Just a downward correction?
Let’s take a look at the hourly chart of the S&P 500 futures contract. It hit the 4,200 level on Monday, before pulling back more than 100 points from the local short-term high. For now, it looks like a correction in an uptrend. (graphic courtesy of http://tradingview.com):
We will likely see a higher opening of the S&P 500 this morning. The broader stock market could extend its consolidation in the near term. For now, it looks like a flat correction after last week’s rally. Investors will be waiting for tomorrow’s monthly jobs data release and the June 15 FOMC interest rate decision. This morning we saw the ADP Non-Farm Payrolls release worse than expected.
Here is the breakdown:
- The S&P 500 will likely extend its near-term consolidation this morning
- The resistance level remains around 4,150.
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Equity Trading Strategist
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