The market sector analysis supports the view gained from the broad market index. Sectors indicate that the US stock market is likely to move higher from the current levels. Financial sector that usually leads the markets in times of expansion and risk taking is quite oversold and has attracted buying as it hit a long term weekly trendline. Another important sector (due to its weight in S&P 500 index) is technology. It is currently bouncing higher from a support level which helps to give the market a lift higher. However, this sector has formed two lower highs since the November peak and causes some worry. Industrial stocks are also at support and as they tend to have a high correlation with the S&P 500 index, this supports the short term bullish view. Energy sector is very much oversold but is forming a big bullish wedge which suggests that the downside is possibly getting limited. A breakout from the wedge would obviously confirm the early indication we are receiving. Another interesting sector is the semiconductors which also have found support at a previous resistance, a weekly pivot high penetrated in November last year.
S&P 500
In the S&P 500 index the weekly trend is still up but showing signs of weakness, which translates to a sideways move in the daily timeframe. Index futures created a higher weekly reaction low last week and provide us with additional evidence that buyers are indeed defending the levels immediately below the 38.2% Fibonacci level at 1983.50. The 23.6% Fibonacci level hindered price advances yesterday but the day being a Martin Luther King Day (markets in US were closed) we should we need to see how market participants will tackle this level today.
We have had bullish divergence in Stochastics and the move higher from the support area on Friday was very promising. This indicates that bulls are in charge here and we should look for moves to 2062 resistance. The weekly lows at 1970.25 and 1961.50 are the nearest major support levels.
S&P 500, 240 min
I suggested in my previous analysis that we should look for buying signals at or close to the January 6th pivot low. The market bounced from the level couple of times intraday since my last analysis but then formed a 4h Doji slightly below (0.66%) the pivot level. This was a signal that the momentum is reversing and produced a healthy run higher. Price has now moved above the descending trendline and has found support from it. The upper Bollinger Bands are close but the price is in the process of moving higher from a support therefore I expect we will see the price moving to the 2060.75 resistance.
Conclusion:
Quite a few technical factors support the S&P 500 at the moment. The fact that the index itself reacts positively to the support area indicates that the sentiment is bullish at least in short term. In addition to this sector analysis echoes the same theme. Quite a few sectors are finding buyers at the current levels. It therefore makes sense to conclude that we should be looking to stay with the long positions taken when market reversed just below the January 6th pivot low. I am looking for a move to 2060.75 resistance.
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Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
Janne Muta
Chief Market Analyst
HotForex