Be skeptical of a bullish response to Friday's news
Three of the major U.S. stock indices currently sit near the tops of their recent ranges, and we believe a serious upward breakout is unlikely. While the markets could go in either direction as an immediate reaction to Friday's economic news, any upward pop should be short lived.
We have included a "zoomed in" inset on the S&P 500 chart that shows three possible paths during the very near term for traders. Our primary scenario, shown in grey, has price moving modestly upward on Friday but remaining beneath the February high. A turn from near 4185 or 4190 would be consistent with that.
The more immediately bearish path drawn in red considers that the index might have completed its upward pattern earlier this week. In that case, we would watch the red retracement levels to cap any small intraday bounce. Keep in mind that even a failure of those red resistance levels merely shifts the focus back to the primary scenario described above.
If price breaks over 4,195, then 4,203 represents the surest upward target for bulls who don't mind grazing near the edge of the cliff.
Cautious bears might watch for the index to move beneath the 4105 area before making their bear plans.
Unlike the S&P 500, the Nasdaq 100 has already exceeded its February high. The series of higher highs and lows is consistent with an ending diagonal wave (c) of [b]. The pattern would look better with a modestly higher high on Friday or sometime next week, but it isn't a requirement.
If price manages to turn downward, there's a possibility of a substantial bounce from near the middle area of supports shown from 11,897 to 11,213. Big picture bears would view that area as a candidate for upward wave (ii) while medium picture bulls might see an opportunity to keep the upward ending diagonal wave (c) going for a few more weeks.
The Dow 30 is relatively weaker than the other two indices in relation to the previous highs in February and December. Although an upward pop could rise briefly above those areas, we think resistance near 34,500 is important. Intraday bears will have an easier time after price breaks below 33,080.
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