S&P500: Will Tuesday’s Decline Resume?

Stocks were mixed on Wednesday, as investors hesitated following Tuesday’s decline. The S&P 500 index reached the new record high of 2,964.15 on Friday. Then it broke below the 2,950 mark and it retraced most of the recent rally. So was it a downward reversal or just another short-term correction?

The U.S. stock market indexes were mixed between -0.1% and +0.3% on Wednesday, as they fluctuated following Tuesday’s decline. The S&P 500 index reached the record high of 2,964.15 on Friday, but then it came back below the 2,950 mark again. The index gained more than 230 points from its early June local low of around 2,729. The Dow Jones Industrial Average was unchanged and the Nasdaq Composite gained 0.3% on Wednesday.

The nearest important resistance level of the S&P 500 index remains at 2,945-2,950, marked by the recent short-term local lows. On the other hand, the support level is at 2,895-2,905, marked by June the 18th daily gap up of 2,897.27-2,905.44.

The broad stock market broke above the last year’s high in the early May. But then the S&P 500 index retraced all of the April’s advance. It got back higher following breaking above the month-long downward trend line. Then it reached the new record high on Friday, but we can see some selling pressure along the previous medium-term local highs:

Short-Term Consolidation, Which Direction is Next?

The index futures contracts trade between -0.1% and 0.2% vs. their Wednesday’s closing prices, so expectations before the opening of today’s trading session are mixed. The European stock market indexes have lost 0.1-0.3% so far. Investors will wait for some economic data announcements: Final GDP number, Unemployment Claims at 8:30 a.m., Pending Home Sales at 10:00 a.m.

The broad stock market will likely continue to fluctuate within a short-term consolidation. There have been no confirmed positive signals so far. And we could see more short-term fluctuations after this month’s rally.

The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of an overnight advance. The nearest important resistance level is at around 2,935-2,940, marked by the short-term local highs. On the other hand, the support level is at 2,910-2,915. The futures contract remains below its short-term downward trend line, as the 15-minute chart shows:

Nasdaq Also Going Sideways

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday downtrend. The nearest important resistance level is at 7,700-7,750. On the other hand, the support level is at 7,600-7,650. The Nasdaq futures contract extends its short-term consolidation, as we can see on the 15-minute chart:

Apple Still Close to $200

Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock is bouncing off the resistance level of $200 recently. The market remains within a short-term consolidation following the early June rally:

Now let's take a look at the daily chart of Microsoft Corp. (MSFT). The stock reached the new record high of $138.40 on Monday, following breaking above the short-term consolidation last week. But Tuesday’s trading session was bearish, as the price fell to the previous short-term consolidation. For now, it looks like a downward correction:

Dow Jones - Reversal or Just Downward Correction?

The DJIA has been relatively weaker than the broad stock market since February. The resistance level remained at around 26,800-27,000, marked by the last year’s topping pattern and the record high of 26,951.8. On Friday the index reached the new medium-term high, following breaking above its late April consolidation. However, on Tuesday it retraced the recent advance:

Nikkei Going Sideways

Let's take a look at the Japanese Nikkei 225 index. It retraced more of its recent decline recently. But the market continues to trade along the previous local lows and the medium-term consolidation:

The S&P 500 index reached the new record high on Friday, before reversing its upward course and closing lower. So was it a downward reversal or just quick profit-taking action before another leg higher? Tuesday’s trading session was quite bearish, but since then we can see a sideways trading action. There may be some more volatility following the recent advances. The broad stock market remains below the important medium-term resistance level, marked by the previous local highs.

Concluding, the S&P 500 index will likely open virtually flat today. The market may extend a consolidation following the early June rally.

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Paul Rejczak

Stock Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

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