Stocks are poised to open lower, but the question remains: is the uptrend really coming to an end?On Friday, the S&P 500 index retreated from its Thursday’s local high of 4,793.30. However, by the end of the day, it rebounded from the daily low of around 4,752 and closed just 0.28% lower. The broad stock market’s gauge continued to trade relatively close to its January 4, 2022, all-time high of 4,818.62. Investors’ sentiment remains bullish; however, last Wednesday’s which is lower than the previous reading of 52.9%. maintaining a bullish bias is still justified, and the market may have another opportunity to reach new high. However, it’s crucial to pay close attention to the trading action, as there could be more uncertainty and volatility ahead. Friday’s volatility and today’s pre-market weakness show some short-term negative signals; therefore I have decided to close the profitable long position at the opening of today’s cash market’s trading session.The market has been extending the uptrend since the release of the FOMC Statement on December 13, which marked a pivot in the Fed’s monetary policy. In early December, the S&P 500 broke above the late July local high of around 4,607, resuming a rally from the local low of 4,103.78 on October 27.This morning, the S&P 500 futures contract is indicating a lower opening of the trading session, currently 0.6% below Friday’s close. The market is poised to extend its Friday’s short-term correction. “the likely scenario is a consolidation along 4,700-4800”, and this prediction is proving accurate. How can we capitalize on such trading action? It’s better to shorten the timeframe of the trades and look for buying opportunities at support levels and selling at resistance levels.
On Friday, it became obvious that the 4,800 level will be a strong resistance, as we can see on the .(Click on image to enlarge)
Nasdaq 100 Broke Below Uptrend Line
The technology-focused Nasdaq 100 index extended its uptrend last week, reaching a new all-time high of 16,969.17 on Thursday. “While it continues to trade above its month-long uptrend line, there are, however, short-term overbought conditions that may lead to a downward correction at some point.”, and it seems that the correction may be starting to unfold. So it’s time to be more cautious, especially considering the elevated bullish sentiment readings mentioned before.(Click on image to enlarge)
Futures Contract Dips Below 4,800
Let’s take a look at the hourly chart of the S&P 500 futures contract. This morning, it’s trading below the 4,800 level, influenced by weakness in Europe, a stronger U.S. dollar, among other factors. The resistance level is now at 4,800, and the support level is at 4,750, marked by the recent local low.(Click on image to enlarge)
Conclusion
I decided to close the profitable long position at the opening of today’s cash market trading session. Last week, it added more gains, but the market’s volatility, some technical overbought conditions, and the overall bullish sentiment show that it’s time to be more cautious as there may be a more pronounced downward correction at some point. The index has gained 777 points since opening that trade at 3,992.4 on Feb. 27. In the near future, I will shift focus to a more short-term oriented trading strategy. For now, my short-term outlook is neutral and I think that no positions are justified from the risk/reward point of view.Stocks will likely extend their Friday’s downward correction this morning, as the S&P 500 futures contract is trading 0.6% lower. that “in a short-term, the market may see some more uncertainty and volatility”, and indeed, there is a lot of uncertainty following an early-December rally and the breakout of the S&P 500 above the 4,700 level. There is still a chance of extending the uptrend, as no confirmed medium-term negative signals have emerged. However, the short-term market picture is more blurry right now, and indexes may be beginning their downward correction.Here’s the breakdown:
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