The S&P 500 continues to fluctuate along the 4,700 level. So is this a topping pattern or just a flat correction before another leg up?
In August, Mohnish Pabrai took part in Brown University's Value Investing Speaker Series, answering a series of questions from students. Q3 2021 hedge fund letters, conferences and more One of the topics he covered was the issue of finding cheap equities, a process the value investor has plenty of experience with. Cheap Stocks In the Read More
The S&P 500 index extended its Monday’s decline yesterday, as it fell to the daily low of 4,652.66. But it closed 0.17% higher following an intraday rebound. The market rebounded to the 4,700 level again. The broad stock market keeps trading within an over two-week-long consolidation. For now, it looks like a flat correction within an uptrend. However, it may also be a topping pattern before some more meaningful downward reversal.
The nearest important support level remains at 4,630-4,650 and the next support level is at 4,600. On the other hand, the resistance level is at 4,700-4,750. The S&P 500 continues to trade along the 4,700 level, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Nasdaq Broke Below the Trend Line
Let’s take a look at the Nasdaq 100 chart. The technology index reached the new record high on Monday, led by the megacap tech stock rallies, but it reversed its intraday course and yesterday it fell below the 16,200 level. The index broke below its short-term upward trend line, as we can see on the daily chart:
Apple and Microsoft - A Potential Reversal
Let’s take a look at the two biggest stocks in the S&P 500 index, Apple Inc (NASDAQ:AAPL) and Microsoft Corporation (NASDAQ:MSFT). Apple accelerated its uptrend on Monday and Microsoft slightly extended its recent advance. Both reached the record highs before reversing lower. Yesterday they were mixed, and today we may see some more short-term uncertainty.
The S&P 500 index is expected to open 0.4% lower this morning following a series of economic data releases. The market will wait for some more economic data releases - the Core PCE Price Index, Personal Income/ Personal Spending at 10:00 a.m., and the FOMC Meeting Minutes at 2:00 p.m. We may see a short-term consolidation ahead of tomorrow’s holiday break and the long holiday weekend.
So overall, the broad stock market may be trading within a topping pattern. However there have been no confirmed negative signals so far.
Nevertheless, we decided to open a speculative short position yesterday, and we are expecting a 5% correction from the current levels.
Here’s the breakdown:
- The S&P 500 backed from the new record high on Monday and it looked like a short-term or medium-term topping pattern.
- A speculative short position is justified from the risk/reward perspective.
- We are expecting a 5% correction from the current levels.
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The information above represents analyses and opinions of Paul Rejczak & Sunshine Profits' associates only. As such, it may prove wrong and be subject to change without notice. At the time of writing, we base our opinions and analyses on facts and data sourced from respective essays and their authors. Although formed on top of careful research and reputably accurate sources, Paul Rejczak and his associates cannot guarantee the reported data's accuracy and thoroughness. The opinions published above neither recommend nor offer any securities transaction. Mr. Rejczak is not a Registered Securities Advisor. By reading his reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees, affiliates as well as their family members may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.