Investorideas.com
Search  Follow Investorideas on Twitter  Investorideas is on Facebook  Investorideas is on Google Plus  Investorideas is on Youtube  Investorideas is on Pinterest  Investorideas is on tumblr  Investorideas is on LinkedIn  Investorideas RSS 


Investorideas podcasts on iTunes, Google Play Music and iHeart.com    Bitcoin and Blockchain Stocks

 

Join Investor Ideas Members to access the Renewable Energy stocks directory, water stocks, biotech stocks, defense stocks directories and the Insiders Corner

Friday's Sell-Off Sets The Tone For Weeks To Come

Stock Trading Alert

 

February 5, 2018 (Investorideas.com Newswire) The main U.S. stock market indexes lost 2.0-2.5% on Friday, breaking below their three-day-long consolidation as investors reacted to quarterly corporate earnings, economic data releases, among others. The S&P 500 index accelerated its short-term downtrend following breakout below the level of 2,800. It currently trades 3.9% below its January 26 record high of 2,872.87. The broad stock market retraced more than 50% of its month-long rally off the December 29th local low at 2,673.61. The Dow Jones Industrial Average was relatively weaker, as it lost 2.5% on Friday, and the technology Nasdaq Composite fell 2.0%.

The nearest important level of support of the S&P 500 index is at around 2,750, marked by the January 11 daily gap up of 2,750.80-2,752.78. There is also an important Fibonacci retracement of 61.8% of the month-long rally at the level of 2,749.73. The next potential support level is at 2,720-2,740, marked by some previous consolidation. On the other hand, resistance level is now at 2,780-2,800, marked by previous level of support. The resistance level is also at around 2,835, marked by last week's local highs.

There is a pretty big chance that the index reached some major medium-term high on Friday a week ago. It broke below its month-long upward trend line on Tuesday following gap-down opening of the trading session, confirming reversal of the uptrend. Will it retrace all of its January rally or even continue lower? The index is at its three-month-long upward trend line. For now, it looks like a downward correction:


Negative Expectations Again

The index futures contracts trade 0.8-1.2% lower vs. their Friday's closing prices this morning. So, investors' expectations before the opening of today's trading session are very negative again. The European stock market indexes have lost 1.0-1.4% so far. Investors will wait for the ISM Non-Manufacturing PMI number release at 10:00 a.m. The market expects that it was at 56.5 in January. However, this data release probably won't affect the overall negative market sentiment today. Investors will also wait for more quarterly corporate earnings announcements.

The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following an overnight move down. The market remains close to its local lows, well below its Friday's panic end-of day-lows. It continues its short-term downtrend, as it retraces more of January move up. The nearest important level of resistance is at around 2,760, marked by an overnight gap down and Friday's daily low. The next level of resistance is at 2,780-2,800, among others. On the other hand, support level is at 2,730-2,740, marked by short-term local lows. The next level of support is at 2,700-2.720. The futures contract is well below its Friday's session lows, as the 15-minute chart shows:


Nasdaq At New Lows

The technology Nasdaq 100 futures contract follows a similar path, as it continues its short-term downtrend today. It extends its Friday's sell-off after an overnight gap-down opening. The nearest important level of resistance remains at around 6,750-6,760, and the next resistance level is at 6,800, among others. On the other hand, potential support level is at 6,680-6,700. The Nasdaq futures contract trades below its short-term downward trend line, as we can see on the 15-minute chart:


Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) - worth mentioning because Apple's market capitalization is around $850 billion, which is more than two times current value of all the cryptocurrencies combined. The stock reached new record high around three weeks ago, following short-term consolidation along the support level of $175. The market got closer to $180 mark, but it failed to continue higher. Consequently, the stock retraced its January advance and continued lower. It accelerated its decline on Friday, as it got closer to $160. We can see some short-term oversold conditions, but no confirmed positive signals so far:


On the other hand, Amazon.com, Inc. stock (AMZN) was relatively strong vs. the broad stock market. Despite an overall weakness, it further extended its month-long rally recently. The stock even reached new record high on Friday, before closing slightly lower. It remained above the level of $1,400 following bouncing off $1,500 mark. The market may be trading within some medium-term topping pattern here:


The Dow Jones Industrial Average daily chart shows that blue-chip index broke below its short-term consolidation on Friday. The price broke below the level of 26,000 and continued lower. We still can see medium-term negative technical divergences - the most common divergences are between asset's price and some indicator based on it (for instance the index and RSI based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low.

The DJIA broke below its three-month-long upward trend line. Is this a new downtrend or still just correction? For now, it looks like a downward correction, because it retraces relatively small amount of its months-long rally:


Concluding, the S&P 500 index sold off on Friday, as it lost more than 2% following breakout below its three-day-long consolidation and the support level of 2,800. The broad stock market continued its short-term downtrend after some important economic data, quarterly earnings releases. Investors took profits off the table following the unprecedented month-long rally. Is this a new downtrend or just downward correction? For now, it looks like a quick correction, but a little more downside and we may see some panic in the stock market. Friday's sell-off sets the tone for weeks to come - new record highs seem like some very unlikely scenario now.

The S&P 500 index traded around 7.5% above its December 29 yearly closing price on Friday January 26. This almost month-long rally seems unprecedented. The legendary investor John Templeton once said that "bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria". So, was this an euphoria phase of the nine-year-long bull market? It's hard to say, but some major downside risks are growing.

We still can see some medium-term overbought conditions. We can use indicators such as Relative Strength Index (RSI), Stochastic Oscillator, Money Flow Index to identify overbought conditions. For example, one can view a given market as "overbought" if the RSI indicator for this market is above 70. Paying attention to the overbought/oversold status of the market is very useful, but there are many other factors that need to be considered before placing a trade.

If you enjoyed the above analysis and would like to receive free follow-ups, we encourage you to sign up for our daily newsletter – it's free and if you don't like it, you can unsubscribe with just 2 clicks. If you sign up today, you'll also get 7 days of free access to our premium daily Gold & Silver Trading Alerts. Sign up now.

Thank you.

Paul Rejczak
Stock Trading Strategist

Stock Trading Alerts

Sunshine Profits - Free Stock Market Analysis

Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak's 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 and affiliates as well as members of their families 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.


More Info:

Investorideas.com Newswire

This news is published on the Investorideas.com Newswire - a global digital news source for investors and business leaders

Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investment involves risk and possible loss of investment. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Contact each company directly regarding content and press release questions. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. More disclaimer info: http://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release on the Investorideas.com newswire http://www.investorideas.com/News-Upload/

Additional info regarding BC Residents and global Investors: Effective September 15 2008 - all BC investors should review all OTC and Pink sheet listed companies for adherence in new disclosure filings and filing appropriate documents with Sedar. Read for more info: http://www.bcsc.bc.ca/release.aspx?id=6894. Global investors must adhere to regulations of each country.



Questrade Democratic Pricing - 1 cent per share, $4.95 min / $9.95 max