The S&P 500 extended its bull market on Friday as it reached the new record high above the 4,600 level. Is this still a topping pattern?
The S&P 500 index gained 0.19% on Friday, Oct. 29, as it extended its recent advance following a lower opening of the trading session. It reached yet another new record high of 4,608.08. The stock market was reacting to worse-than-expected quarterly corporate earnings releases from the Apple (NASDAQ:AAPL) and Amazon.com (NASDAQ:AMZN). However, the Microsoft (NASDAQ:MSFT) and Tesla (NASDAQ:TSLA) stocks drove the index higher again on Friday. The market seemed overbought in the short-term, most likely it’s still trading within a topping pattern.
The nearest important support level was at 4,550-4,570, and the next support level was at 4,520-4,525, marked by the previous daily gap up of 4,520.40-4,524.40. On the other hand, the resistance level rose to at around 4,650. The S&P 500 has been trading along a short-term upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Apple Is Volatile While Microsoft Keeps Rallying
Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple released its earnings after the Thursday’s close and the first reaction was negative. But on Friday the stock retraced some of its intraday decline. Nevertheless it lost 1.8%. The resistance level remains at $154-156. It was still trading well below the record highs, as we can see on the daily chart:
Now let’s take a look at MSFT. It keeps rallying and reaching new record highs after last week’s quarterly earnings release. The market has been remaining above a month-long upward trend line. We can see that in the short-term it’s been getting more and more technically overbought. The stock may enter a consolidation or a correction just like in the middle of August when it rallied above $300 level.
Conclusion
The S&P 500 index reached a new record high on Friday, however it closed with a gain of just 0.2%. It still looks like a topping pattern and we may see a consolidation or a downward correction at some point. There may be profit-taking action following quarterly earnings releases. Today the main indices are expected to open 0.4% higher, but we will likely see an intraday correction later in the day.
Here’s the breakdown:
- The S&P 500 reached new record high on Friday, as it broke slightly above the 4,600 level.
- A speculative short position is still justified from the risk/reward perspective.
- We are expecting a 3% or higher correction from the new record highs.