S&P 500: Inflation Fears May Push Stock Prices Lower


Stocks’ short-term rally came to an end this week and the index entered a consolidation along the 4,700 level. Is this a topping pattern?

The S&P 500 index lost 0.35% yesterday, as it fell below the 4,700 price mark following a two-day-long consolidation along Friday’s record high of 4,718.50. The recent rally was not broad-based and it was driven by a handful of tech stocks like Microsoft (NASDAQ:), NVIDIA (NASDAQ:) and Tesla (NASDAQ:). The market seems overbought in the short-term and most likely it’s trading within a topping pattern. Today we may see another consolidation or a profit-taking action following worse-than-expected inflation data release (the CPI monthly number came at +0.9% vs. the expected +0.6%).

The nearest important support level is at 4,650-4,675 and the next support level is at 4,600. On the other hand, the resistance level is at 4,700-4,720. The S&P 500 broke below its steep short-term upward trendline, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

S&P 500 Daily Chart.

Nasdaq Lost 0.7% on Tuesday

Let’s take a look at the chart. The technology index broke above the 16,000 level recently and it was trading at the new record high. The market accelerated parabolically above its short-term upward trendline. But yesterday it lost 0.7% and closed below that trendline. The resistance level remains at 16,400, and the short-term support level is at 16,000, among others, as we can see on the daily chart:

NASDAQ 100 Daily Chart.

Apple’s Further Consolidation And Microsoft’s Potential Topping Pattern

Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple (NASDAQ:) continues to trade within a consolidation along the $150 level and it is still well below the record highs, and the Microsoft (NASDAQ:) is close to breaking below its over month-long upward trend line. So the tech “mega-caps” may be turning lower, as we can see on their daily charts:

Apple Daily Chart.
Microsoft Daily Chart.


The broad stock market went slightly lower on Tuesday and we may see a downward continuation this morning. The main indices are expected to open 0.2-0.5% lower following worse (higher) than expected consumer inflation number release.

It looks like a topping pattern and we may see a downward correction at some point. There may be a profit-taking action following quarterly earnings releases.

Here’s the breakdown:

  • The S&P 500 extended its uptrend last week, but since Friday it is trading within a short-term downtrend.
  • But still no positions are justified from the risk/reward point of view.

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