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Paul Rejczak

Paul Rejczak

Writer, Sunshine Profits

Stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market…

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Stock Bulls May Be Preparing For A Break Out

Chart

The U.S. stock market indexes gained between 1.3 percent and 1.7 percent on Friday, retracing most of their last week's move down, as investors reacted to monthly jobs data release. The S&P 500 index got closer to its Monday's local high, and it currently trades 7.3 percent below January 26 record high of 2,872.87. The Dow Jones Industrial Average gained 1.4 percent, and the technology Nasdaq Composite gained 1.7 percent on Friday, as Apple's stock price led the technology sector higher.

The nearest important level of resistance of the S&P 500 index is now at around 2,670, marked by Friday's daily high. The next resistance level is at 2,685-2,710, marked by previous local high and March 22 daily gap down of 2,695.68-2,709.79. On the other hand, support level is at 2,595-2,615, marked by recent fluctuations and an over year-long medium-term upward trend line.

The broad stock market continues its medium-term consolidation following late January - early February sell-off. There are still two possible medium-term scenarios - bearish that will lead us below February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or breakout towards 3,000 mark. There is also a chance that the market will just go sideways for some time, and that would be positive for bulls in the long run (some kind of an extended flat correction):

(Click to enlarge)

Positive Expectations

The index futures contracts trade 0.3-0.5 percent higher vs. their Friday's closing prices, so expectations before the opening of today's trading session are positive. The main European stock market indexes have gained 0.1-0.8 percent so far. There will be no new important economic data announcements. However, investors will wait for more quarterly earnings releases. Friday's uptrend may extend a little, but we may see more uncertainty, as the broad stock market gets closer to previous local highs. There have been no confirmed negative signals so far.

The S&P 500 futures contract trades within an intraday consolidation following an overnight move up. The market extends its Friday's advance. The nearest important level of resistance is at around 2,680-2,685, marked by last week's Monday's local high.

Related: Dow Jones Jumps Despite Disappointing Jobs Report

Potential resistance level is also at 2,700. On the other hand, level of support is at 2,650-2,660, marked by recent resistance level. The next support level is at 2,620-2,630. The futures contract trades just below its last Monday's local high, as the 15-minute chart shows:

(Click to enlarge)

Nasdaq Pauses After Friday's Rally

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after moving up overnight. The market fell closer to 6,500 mark on Thursday, but it quickly came back above the level of 6,600 and then it continued much higher on Friday. We may see some more uncertainty, as it gets closer to its April local high above the level of 6850. The nearest important resistance level is now at 6,820-6,830, and the next level of resistance is at 6,850-6,870. On the other hand, support level is at 6,750-6,800, among others. The Nasdaq futures contract trades above the level of 6,800, as we can see on the 15-minute chart:

(Click to enlarge)

Apple at New Record, Amazon Going Sideways

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It was gaining ahead of Tuesday's quarterly earnings releases, and it rallied after the fact.  On Tuesday we wrote, that "we will likely see a more clear reaction. Probably to the upside, as there seems to be some "sell the rumor, buy the fact" action going on". And we were right! The stock reached new record high on Friday, as it broke above resistance level of around $175-180:

(Click to enlarge)

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high more than a week ago on Friday, as investors reacted to better-than-expected quarterly earnings release. Then, on the same day it sold off below $1,600. Is this a downward reversal or just correction following breakout higher? If the price breaks below support level of around $1,550, we could see more selling pressure. It still looks like a short-term downward correction:

(Click to enlarge)

Dow Jones Above Trend Line Again

The Dow Jones Industrial Average has managed to break above its medium-term downward trend line again. The blue-chip index extends its consolidation below the resistance level of around 24,800-25,000. Related: The One Thing Holding Bitcoin Back

Will it resume its uptrend after a downward correction? The support level remains at around 23,800-24,000. We can see a few-week-long downward trend line. If the index breaks higher it could continue towards the above-mentioned 25,000 mark:

(Click to enlarge)

The broad stock market extends its medium-term consolidation following the early February sell-off. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come. Stocks rallied on better-than-expected big cap tech companies' earnings releases recently, but they came back lower after Wednesday's FOMC Statement release. They resumed their uptrend on Friday, following monthly jobs data release, Apple's stock price rally. It still looks like a flat correction within a medium-term downtrend.

Concluding, the S&P 500 index will likely extend its Friday's move up slightly today. However, there are some close resistance levels ahead, and we may some short-term uncertainty. Overall, there have been no confirmed negative signals so far.

By Paul Rejczak via Sunshine Profits

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