Mixed Stock Market, Topping Pattern or Just Pause Within a Rally?

By: Paul_Rejczak

Stocks were mixed on Wednesday, as investors continued to take profits off the table following the recent rally. The broad stock market remains relatively close to  its new record high. Is this a topping pattern or just pause before another leg up?

The U.S. stock market indexes were mixed between -1.2% and +0.1% on Wednesday, as investors hesitated following the recent record-breaking rally.  The S&P 500 index has reached the record high of 2,916.50 last week. It currently trades below 2,900 mark. The Dow Jones Industrial Average gained 0.1% and the technology Nasdaq Composite lost 1.2% yesterday.

The nearest important level of support of the S&P 500 index is at 2,875-2,885, marked by last week's Monday's daily gap up of 2,876.16-2,884.69 and yesterday's daily low of around 2,877. The support level is also at 2,860-2,865. On the other hand, the nearest important level of resistance is at 2,900. The next resistance level is at 2,910-2,915, marked by the mentioned last Wednesday's record high.

The broad stock market reached the new record high last week, as it extended its short-term uptrend above the level of 2,900. We may see more upward price action in the near term, but a downward correction may be coming. The market has retraced its late January - early February downward correction recently. So will it continue towards 3,000 mark? The index still trades above its medium-term upward trend line, as we can see on the daily chart:

Flat Expectations

The index futures contracts trade between -0.1% and +0.1% vs. their Wednesday's closing prices. So, expectations before the opening of today's trading session are virtually flat. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements: Initial Claims, Productivity at 8:30 a.m., ISM Services, Factory Orders at 10:00 a.m., Crude Oil Inventories number at 11:00 a.m. The broad stock market will probably extend its short-term consolidation, as the index may remain close to 2,900 mark and trade above the mentioned last week's Monday's daily gap up. There have been no confirmed negative signals so far. However, we can see technical overbought conditions.

The S&P 500 futures contract trades within an intraday consolidation following the recent downward correction. The nearest important level of resistance is now at around 2,895-2,900, marked by some short-term local highs. On the other hand, the support level is at 2,875-2,880, among others. The futures contract broke slightly above its short-term downward trend line this morning, as the 15-minute chart shows:

Nasdaq Lower

The technology Nasdaq 100 futures contract was relatively weaker than the broad stock market yesterday, as it got back to 7,500 mark. It quickly retraced some of its recent advance. The nearest important level of support is now at 7,500. On the other hand, resistance level is at 7,550-7,600, among others. The Nasdaq futures contract trades within a flat correction following yesterday's sell-off, as we can see on the 15-minute chart:

Big Cap Tech Stocks - Profit-Taking Action

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). Yesterday, it reached the new record high at the level of $229.67 before reversing its intraday uptrend and closing slightly lower. There have been no confirmed negative signals so far. However, we may see a downward correction at some point. The nearest important level of support is now at $215-220, marked by the recent consolidation. The price remains above its month-long upward trend line:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It has reached the new record high at the price of $2,050.50 on Tuesday. Yesterday, it retraced some of its recent rally. However, it remains above its month-long upward trend line. We still can see some negative technical divergences. But there have been no confirmed negative signals so far:

Dow Jones Relatively Stronger, but Within a Consolidation

The Dow Jones Industrial Average reached new local highs after breaking above its previous high recently. But the blue-chip stocks' gauge got back below the level of 26,000. And it continues to trade below its late January record high of 26,616.71. The nearest important level of resistance is at 26,340-26,440, marked by the late January daily gap down. The index remains above its two-month long upward trend line, as the daily chart shows:

The S&P 500 index reached the new record high at the level of 2,916.50 last week. The broad stock market retraced some of its recent rally, as the index got back below 2,900 mark. Was it a meaningful downward reversal or just correction before another leg up? There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions along with negative technical divergences.

Concluding, the S&P 500 index will likely open virtually flat today. Then it may continue to fluctuate close to 2,900 mark. For now, it looks like a downward correction within an uptrend from the August local low of around 2,800.

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Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts
SunshineProfits.com

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 behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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Disclaimer

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