Stocks extended their short-term downtrend as the S&P 500 index fell slightly below its Monday’s daily low. Is more downside trading action coming?
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The broad stock market index fell to the daily low of 4,435.46 on Tuesday and it was the lowest since August 20. On September 2 the index reached a new record high of 4,545.85. Since then it has lost over 110 points. This morning stocks are expected to open virtually flat.
The index remains elevated after the recent run-up, so we may see some more profound profit-taking action at some point.
The nearest important support level of the broad stock market index is at 4,435 and the next support level is at 4,400-4,410. On the other hand, the nearest important resistance level is now at 4,465-4.475, marked by the recent support level. The S&P 500 got back close to its over four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Dow Jones – Short-term Consolidation
Let’s take a look at the Dow Jones Industrial Average chart. The blue-chip index broke below a potential two-month-long rising wedge downward reversal pattern last week. It remained relatively weaker, as it didn’t reach a new record high like the S&P 500 and the Nasdaq. The support level is now at around 34,500 and the near resistance level is at 34,750, marked by the recent support level, as we can see on the daily chart:
September Last Year – S&P 500 Fell Almost 11%
In 2020, the S&P 500 index reached a local high of 3,588.11 on September 2 and in just three weeks it fell 10.6% to local low of 3,209.45 on September 24. This year, September’s downward correction has started at the new record high of 4,545.85 on September 3, so there is a striking similarity between those two trading actions. However, the index is just 2.4% down this time.
Apple Stock at Trend Line
Apple stock weighs around 6.3% in the S&P 500 index, so it is important for the whole broad stock market picture. Last week it reached a new record high of $157.26. Since then it has been declining. So it looks like a bull trap trading action. On Friday the stock accelerated its downtrend following an unfavorable federal judge's ruling. We can still see negative technical divergences between the price and indicators and a potential topping pattern. The two-month-long upward trend line remains at around $147.
Yesterday, the S&P 500 index extended its short-term downtrend following breaking below 4,500 level on Friday. For now, it still looks like a correction within an uptrend. Today we will most likely see a flat opening of the trading session – we may see some more short-term consolidation.
The market seems overbought, and we may see some more profound downward correction soon. Therefore, we think that the short position is justified from the risk/reward perspective.
Here’s the breakdown:
- The market retraced more of its recent advances this week, as the S&P 500 index extended its decline below 4,450 level.
- Our speculative short position is still justified from the risk/reward perspective.
- We are expecting a 5% or bigger correction from the record high.
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Stock Trading Strategist
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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.