Fed Hikes Interest Rates, Stocks Fall, Just a Correction?

By: Paul_Rejczak

Stocks reversed their yesterday's intraday uptrend following the Fed's Rate Decision release. Will they continue lower today? Or was it just a quick downward correction before another leg up?

The U.S. stock market indexes lost 0.2-0.4% on Wednesday, as investors reacted to the FOMC's Interest Rate hike announcement. The S&P 500 index has reached the new record high of 2,940.91 on Friday. It currently trades 1.1% below that high. The Dow Jones Industrial Average lost 0.4% and the technology Nasdaq Composite lost 0.2% yesterday.

The nearest important level of support of the S&P 500 index is now at 2,900. The market fell below its last Thursday's daily gap up of 2,912.36-2,919.73 yesterday. The support level is also at 2,885-2,890, marked by the recent local lows. On the other hand, the nearest important level of resistance remains at around 2,920-2,930, marked by Monday's daily gap down of 2,923.79-2,927.11. The resistance level is also at 2,940, marked by the record high.

The broad stock market reached the new record high last week, as the S&P 500 index extended its short-term uptrend above the level of 2,900. Will it continue higher despite some short-term technical overbought conditions? The index is at its three-month-long upward trend line following yesterday's intraday reversal, as we can see on the daily chart:

New Downtrend or Just Correction?

The index futures contracts are trading between +0.1% and +0.3% vs. their Wednesday's closing prices. So expectations before the opening of today's trading session are slightly positive. The main European stock market indexes have been mixed so far. Investors will wait for the series of economic data announcements this morning: Durable Goods Orders, Final GDP q/q number, Wholesale Inventories, Initial Claims at 8:30 a.m., Pending Home Sales at 10:00 a.m. The broad stock market will likely remain within a short-term consolidation along the level of 2,900. The index is close to its late August local high. However, if the S&P 500 breaks lower, we could see more selling pressure. For now, it looks like just another correction within an uptrend.

The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following its yesterday's decline. The nearest important level of resistance is now at around 2,915-2,920, marked by the recent support level. The next resistance level is at 2,930-2,935. The resistance level is also at 2,940-2,945, marked by the record high. On the other hand, the support level is at 2,900-2,905, among others. The futures contract is below its recent trading range, as the 15-minute chart shows:

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates following its yesterday's decline. However, the tech stocks' gauge is now relatively stronger than the broad stock market. It continues to trade above the recent local lows. The nearest important level of resistance is at around 7,650-7,700, marked by the topping pattern along the record high. On the other hand, the support level is now at 7,550-7,600, among others. The Nasdaq futures contract continues to trade along the level of 7,600, as we can see on the 15-minute chart:

Apple, Amazon - Going Sideways Again?

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached the new record high at the level of $229.67 on September the 5th, before reversing lower. Then it broke below its month-long upward trend line. The resistance level remains at $225-230. On the other hand, the support level is at $215:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It has reached the new record high at the price of $2,050.50 in the early September. Since then it was retracing its record-breaking rally. The stock broke below the month-long upward trend line and now it is bouncing off its medium-term upward trend line:

Dow Jones Also Lower

The Dow Jones Industrial Average reached the new all-time high at the level of 26,769.16 last week. Since then it is retracing its recent advance. It broke below the support of around 26,500 yesterday, but it continued to trade above its upward trend line:

The S&P 500 index reached the new record high last week following the recent breakout above its late August local high. Then it retraced some of this record-breaking advance. Yesterday, the index reversed its intraday rally following the Interest Rate hike announcement. Will it continue lower today? We will likely see some more short-term consolidation along the level of 2,900.

Concluding, the S&P 500 index will probably open slightly higher today. Then we may see a consolidation close to 2,900 mark. It still looks like a correction within an uptrend. There have been no confirmed medium-term negative signals so far.

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Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts
SunshineProfits.com

Stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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