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 retraced most of their Wednesday’s decline, but will they break higher?

The S&P 500 index retraced most of its Wednesday’s decline on Friday, as it went briefly above 4,770 level following lower-than-expected Core PCE Price Index, one of the key inflation gauges. It came at +0.1% m/m vs. the expected +0.2%.

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.

On Friday, the broad stock market index gained just 0.17%, retracing some of its intraday advance. On Wednesday, the S&P 500 reached a new local high of 4,778.01 before quickly declining to 4,700 level. 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.

Stocks are expected to open 0.2% higher today, and there may be a lower volatility due to the holiday season. 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.
Friday’s advance brought the index closer to the resistance level of around 4,780, as we can see on the daily chart:

Nasdaq 100 Trades Along Uptrend Line

The technology Nasdaq 100 index retraced most of its Wednesday decline on Friday. On Wednesday, it reached a new all-time high of 16,860.68, breaking slightly above its previous peak from November 22, 2022. The market extends its consolidation and so far relatively flat correction of the uptrend. However, there may be increased uncertainty ahead due to low activity leading up to year’s end.

Apple Stock Extends Correction

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 retraced some of its mid-December rally before bouncing from the upward trend line. On Wednesday it broke below that upward trend line, and on Friday it was the lowest since December 12. The $200 price level remains an important resistance level here.

Futures Contract Holds Above 4,800

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 continues to trade above 4,800. The support level is at 4,750, marked by Wednesday’s daily low of around 4,745. On the other hand, the resistance level is at 4,820-4,830.

Conclusion

The long position remains profitable and on Friday it added more gains. Overall the index has gained 762 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.

The S&P 500 index has slightly extended its short-term uptrend on Friday, and this morning it is likely to move sideways due to low activity at the end of the year. 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 there have been no confirmed negative signals. Returning to the question of whether stocks will break higher, while it’s a possibility, bulls will likely need to arm themselves with patience.

Here’s the breakdown:

• The S&P 500 went close to its last Wednesday’s high again.
• So far, there is no clear winner in the fight between bulls and bears.
• 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