Fed action casts shadow on bullish case for stocks

March 22, 2018 09:08 AM

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Apple Leads Lower, Facebook Bounces

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record last week, but then it reversed the uptrend. We saw negative technical divergences - the most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI or MACD based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. The market formed a negative candlestick chart pattern called "bearish engulfing". It consists of a smaller white candlestick followed by a black candlestick that "engulfs" the white one. This downward reversal pattern has been confirmed by last week's Wednesday's move down. Consequently, the market continued its downtrend, as it broke below the upward trend line on Monday. If the price breaks below support level of $170 and then below its previous daily gap up, it could continue towards $150 again:

Now let's take a look at Facebook, Inc. (FB) daily chart. It fell almost 10% on Monday and Tuesday, as it broke below its medium-term consolidation and potential downward reversal head-and-shoulders pattern. Monday's daily gap down acts a resistance level now. Overall, the stock remains relatively weaker than technology stocks sector and the whole broad stock market. It bounced off support level at $160-165 again, but the nearest important level of resistance is at around $170:

Dow Jones Remains Below 25,000 Mark

The Dow Jones Industrial Average daily chart shows that blue-chip index was relatively weaker than the broad stock market and much weaker than record-breaking technology stocks recently, as it continued to trade well below late February local high. The market broke below 25,000 mark, as it retraced more of its recent rebound. Possible support level is at around 24,250, marked by previous local low. If the index breaks lower, it could continue towards February 9 panic low. In late February, there was a negative candlestick pattern called Dark Cloud Cover, a pattern in which the uptrend continues with a long white body, and the next day it reverses following higher open and closes below the mid-point between open and close prices of the previous day. It acted as a resistance level. The index trades within an over-week-long consolidation, as we can see on the daily chart:

Concluding, the S&P 500 index will open lower today, as investors' sentiment worsens after yesterday's Fed's interest rate hike. Will it continue below the level of 2,700? For now, it looks like it could bounce here and extend its short-term fluctuations.

Last week's rally failed to continue following negative political news releases. Was this just quick profit-taking action or more meaningful downward reversal? It's hard to say right now, but Monday's sell-off made medium-term bullish case less likely. There is also a negative over-month-long rising wedge pattern. If stocks continue lower from here, then they will probably reach or exceed February panic low.

 

 

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