Fed action casts shadow on bullish case for stocks
Fed's interest rate hike drove stocks lower on Wednesday, as investors feared tightening monetary policy could considerably slow future growth. Will stock market indexes continue lower today? Expectations before the opening of today's trading session are very negative, but we may see more volatility. The market is still at a crossroads.
The main U.S. stock market indexes lost 0.2-0.3% on Wednesday's following relatively brief rally after the FOMC's Rate Decision release. The S&P 500 index continued to fluctuate within its short-term consolidation. It is currently around 5.2% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 0.2%, and the technology Nasdaq Composite lost 0.3%.
The nearest important level of resistance of the S&P 500 index remains at 2,740-2,750, marked by Monday's daily gap down of 2,741.38-2,749.97. Yesterday's daily high of 2,739.14 confirmed the importance of that resistance level. The next resistance level is at around 2,775-2,780, marked by last Wednesday's daily high. On the other hand, support level is at 2,695-2,700, marked by Monday's daily low, among others. Potential support level is also at 2,650-2,670, marked by previous local lows.
We can see that stocks reversed their medium-term upward course following whole retracement of January euphoria rally. Then the market bounced off its almost year-long medium-term upward trend line, and it retraced more than 61.8% of the sell-off within a few days of trading. Is this just an upward correction or uptrend leading to new all-time highs? The market is still in the middle of two possible future scenarios.
The bearish case leads us to February low or lower after breaking below medium-term upward trend line, and the bullish one means potential double top pattern or breakout above the late January high. Monday's sell-off made the bearish case more likely again. You should take notice of a breakdown below potential rising wedge pattern. This over month-long trading range looks like an upward correction following late January - early February sell-off:
Stocks Set to Open Much Lower
Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.8-1.3% lower vs. their yesterday's closing prices. The European stock market indexes have lost 0.7-1.0% so far. Investors will wait for some economic data releases: Initial Claims at 8:30 a.m., Flash Manufacturing PMI, Flash Services PMI numbers at 9:45 a.m., Leading Indicators at 10:00 a.m. The market is back at its Monday's lows, so the overall sentiment worsened again. Will it break lower? If the S&P 500 index breaks below the support level of 2,700, it could continue towards the above-mentioned 2,650-2,670.
The S&P 500 futures contract trades within an intraday downtrend, as it extends its yesterday's intraday move down. The nearest important level of support is at around 2,695-2,700, marked by Monday's local low. The next support level is at 2,680, among others. On the other hand, resistance level is at around 2,710-2,715, marked by recent fluctuations. The resistance level is also at 2,725-2,730n. The futures contract trades below its short-term downward trend line, as we can see on the 15-minute chart:
Nasdaq Breaks Below 6,800
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday downtrend. It broke below 6,800 mark this morning. The market gained more than 1,000 points off its February 9 bottom, as it remarkably retraced all of its late January - early February sell-off in one month. Is this just downward correction following record-breaking rally? It still looks like a correction and not some new medium-term downtrend. The nearest important short-term resistance level is at around 6,850, marked by recent local lows and the next level of resistance remains at 6,900-6,950. On the other hand, potential support level is at 6,700-6,750. The Nasdaq futures contract extends its short-term downtrend this morning, as the 15-minute chart shows: