Trading position (short-term, our opinion; S&P 500 futures contract): In my opinion, the short-term outlook is bullish and long positions are still justified from the risk/reward point of view (since Feb. 27).

Stocks have slightly extended their uptrend, but is there more upside left?

The S&P 500 index reached a new local high yesterday, briefly surpassing the 4,780 level. It retraced all of last Wednesday’s sell-off, and it was the highest since early January 2022. Investors’ sentiment remains very bullish as we approach the year’s end. Last week’s AAII Investor Sentiment Survey showed that 53% of individual investors are bulls, and today’s results, which may be even higher, will be released later in the day.

Just like I wrote on Friday, maintaining a bullish bias is still justified, and the market may have another opportunity to reach new high. However, it’s crucial to pay close attention to the trading action, as there could be more uncertainty and volatility ahead. Nevertheless, I believe it is still justified to maintain the profitable long position.

Yesterday, the broad stock market index gained 0.42%, but retraced slightly from its intraday high before the close. However, it reached new medium-term high of 4,784.72. It has been extending the uptrend since the release of the FOMC Statement the previous week, which marked a pivot in the Fed’s monetary policy. In early December, the S&P 500 broke above the late July local high of around 4,607, resuming a rally from the local low of 4,103.78 on October 27.

The S&P 500 futures contract indicates that stocks may open virtually flat today, so the market is likely to further extend its consolidation, despite reaching new local high. On Thursday, I wrote that “the likely scenario is a consolidation along 4,700-4800”, and the prediction is proving accurate. How can we capitalize on such trading action? It’s better to shorten the timeframe of the trades and look for buying opportunities at support levels and selling at resistance levels.
It seems that the market may take a little breather following Tuesday’s intraday trading action. Yesterday’s advance brought the index close to the resistance level of around 4,780-4,800, as we can see on the daily chart.

Nasdaq 100 Reached New Record High

The technology Nasdaq 100 index remained relatively strong yesterday, reaching yet another new all-time high of 16,907.51. While it continues to trade above its month-long uptrend line, there are, however, some short-term overbought conditions that may lead to a downward correction at some point. Of course, it’s too early to talk about sell signal, but it’s time to be more cautious, especially considering the very high bullish sentiment readings mentioned before.

Apple Stock Still Lags Behind

Let’s move on to an individual stock. Apple is one of the most important market movers. Last week on Monday, I wrote that it “looks like a topping pattern or just some flat correction following the rally”, and indeed, the market broke below its upward trend line. Yesterday it was the lowest since December 12. However, the stock may be approaching a local bottom, as it nears the support level of $191.50-192.00, marked by the recent lows. The $200 price level remains an important resistance level here.

Futures Contract Hovers Near Local Highs

Let’s take a look at the hourly chart of the S&P 500 futures contract. On Thursday and Friday it rebounded following Wednesday’s intraday sell-off. This morning the market is trading along its local highs. The nearest important resistance level is at 4,830, with the support level at 4,780-4,800, marked by the recent price action.

Conclusion

The long position remains profitable and yesterday it added more gains. Overall the index has gained 782 points since opening that trade at 3,992.4 on Feb. 27. In the near future, I will be looking to close that trade and shift focus to a more short-term oriented trading strategy. For now, it remains justified as stocks may further extend their uptrend.

Stocks extended their uptrend yesterday, and this morning, they are likely to trade sideways along medium-term highs. Consequently, the S&P 500 index may have another chance at reaching new highs closer to the 4,800 level. On Thursday, I wrote that “in a short-term the market may see some more uncertainty and volatility”, and indeed, there is a lot of uncertainty following an early-month rally and the recent breakout of the S&P 500 above the 4,700 level. Nevertheless, there is still a chance of extending the uptrend, as no confirmed negative signals have emerged. Returning to the question of whether there is much more upside for stock prices, while it’s a possibility, bulls will likely need to arm themselves with patience. It will involve more of climbing the wall of worry than a rallying trading action.

Here’s the breakdown:

• The S&P 500 reached new medium-term high on Tuesday.
• So far, there is no clear winner in the fight between bulls and bears, but yesterday, bulls took the initiative.
• Short-term uncertainty and volatility may favor trading based on support and resistance levels.
• In my opinion, the short-term outlook is still bullish and long positions are justified from the risk/reward point of view.

As always, we’ll keep you, our subscribers, well-informed.

Trading position (short-term, our opinion; S&P 500 futures contract): In my opinion, the short-term outlook is bullish and long positions are still justified from the risk/reward point of view (since Feb. 27).

Thank you.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care