Stocks Bounced, But Bulls Not Out Of Woods Yet
Sunshine Profits | Oct 04, 2021 10:48AM ET
Stocks bounced from the new local low on Friday. Is this the end of a downward correction or just some consolidation before another leg down?
The S&P 500 index slightly extended its short-term downtrend on Friday, as it reached the local low of 4,288.52 right after the opening. But bulls took over and the market gained 1.15% on a daily basis. It came back above 4,350.
The nearest important ):
Dow Jones Didn’t Reach New Low
Let’s take a look at the Dow Jones Industrial Average chart. In early September the blue-chip index broke below a two-month-long rising wedge downward reversal pattern. Last week, it got back closer to its mid-September local low. However, unlike the broad stock market’s gauge, it managed to stay above that support level. The nearest important resistance level is at around 34,500, as we can see on the daily chart:
Apple Still At Support Level
Apple (NASDAQ:AAPL) stock weighs around 6.1% in the S&P 500 index, so it is important for the whole broad stock market picture. Since early September it has been declining from the record high. Recently the stock sold off to the previous local lows and on Friday it sold off to around $139 before going back up. The $142 price level is acting as a support level, so it is still a “make or break” situation.
We Closed Our Profitable Short Position Friday
Let’s take a look at the hourly chart of the S&P 500 futures contract. We opened a short position on Aug. 12 at the level of 4,435 and closed it on Friday at the level of 4,315 with a gain of 120 points because the risk/reward perspective seemed less favorable (chart by courtesy of ):
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Conclusion
Last week the broad stock market got back to its mid-September local low and the S&P 500 index fell briefly below 4,300 level. Then, we witnessed a short-covering rally. Most likely it was just an upward correction within a downtrend. There have been no confirmed positive signals so far. However, the risk/reward perspective seems less favorable right now and no positions are currently justified.
Here’s the breakdown:
- The S&P 500 bounced from 4,300 support level on Friday, but for now it looks like a short-term upward correction.
- Our speculative short position has been closed right before the opening of Friday’s cash market’s trading session.
- However, we are still expecting more downward pressure and a correction to 4,200-4,250 level.
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