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It still looks pretty heavy, and despite the positive results from Apple (NASDAQ:) more losses could follow.
Technology stocks in particular continue to weigh heavily on major US indices as rising expectations of multiple Fed rate hikes undermine demand for expensive growth stocks. As the weekend approaches, there may be periods of short-covering here and there, but ultimately the ongoing trend is bearish. So potential rallies are likely to be short lived until something fundamental changes. Indeed, the S&P 500 has shown no further bullish price action after forming that hammer on the daily chart on Monday:
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If that hammer candle marked the low for the market, we certainly had an upward follow by now up to see. But this is late in the week and we are in the lower half of Monday's range. This points to a market that does not have a bullish conviction – and rightly so.
So in my view it seems that the bulls are still the trapped group of investors and their stops are at risk of being taken – possibly later today.
Therefore, a drop to at least below Monday's low of 4222 now seems quite likely. If there is acceptance below that level, the bears may want to target the Fibonacci extension levels shown in the chart.
The first major Fibonacci expansion levels of 127.2% and 161.8%, derived from this week's current range, come in at 4160 and 4080. The same Fibonacci ratios of the rebound from October to January come in at 4132 and 3945, respectively.
As for the bulls, they will need to see a rally above Monday's high to tip the balance in their favor. Should this happen, the S&P will also have regained the 200-day moving average. Only then will the bearish outlook turn weak.
But until and unless that happens, or we find a more significant bottom pattern at lower levels, the path of least resistance remains down. As such, I would keep trying to sell in any short term rallies at resistance, then buy back the dips to support.
