Stocks Will Rally Again, but Short-Term Top May Be Forming

The S&P 500 will likely break higher, but will the bullish sentiment last?

The S&P 500 index lost 0.89% on Monday following its Friday’s gain of 0.9%, as it fluctuated below the important 4,000 level. Last week the market got up to that level after the Thursday’s Consumer Price Index release. The broad stock market’s gauge went the highest since September 13. Yesterday, its new medium-term high was at 4,008.97, but stock prices retraced the intraday advance.

This morning the S&P 500 index is expected to open 1.8% higher on lower-than-expected Producer Price Index and higher-than-expected Empire State Manufacturing Index releases. We may see another profit-taking action at some point. There have been no confirmed negative signals so far.

The S&P 500 index broke above its previous local highs last week and it got to the 4,000 level, as we can see on the daily chart (chart by courtesy of ):

Futures Contract Trades at New Local High

Let’s take a look at the hourly chart of the S&P 500 futures contract. It rallied to new medium-term high this morning, following the mentioned inflation data release. The support level is now at 4,000 and the next short-term resistance level is at 4,050.

In our opinion, no positions are currently justified from the risk/reward point of view. (chart by courtesy of ):


The S&P 500 index will likely open much higher this morning and it will reach new medium-term high after breaking above the 4,000 level. We may see some profit-taking action later in the day, as the market seems overbought in the short-term. However, there have been no confirmed negative signals so far.

Here’s the breakdown:

  • The S&P 500 is expected to open above the 4,000 level this morning.
  • We may see some profit-taking action later in the day.

Thank you.

Paul Rejczak,
Stock Trading Strategist