Wall Street Buys the Dip

The stock market continued its rally off last Monday’s lows with prior resistance levels coming back into focus. Better-than-expected earnings from the Financial sector helped sentiment.

The Nasdaq tagged a high of 19,709 while ending at 19,630 (+1.5%). Key resistance at 19,500 was recovered. Support is at 19,250.

The S&P 500 closed  at 5,996 (+1%) with the peak reaching 6,014. Key resistance at 6,000 was cleared but held. Rising support is at 5,950-5,900.

The Dow topped out at 43,653 before settling at 43,487 (+0.8%). Key resistance at 43,250 was reclaimed. Support is at 43,000-42,750.

Earnings and Economic News

Market closed

Technical Outlook and Market Thoughts

The major indexes traded down to lower lows last Monday and made a dramatic v-shape recovery the rest of the week. The action proved dip buying is still alive and well as it was throughout 2024, and more importantly, has key resistance level back in play.

At the intraday Monday lows, the Russell was down 12% from its November 25th all-time high of 2,466. This area represents a double-top peak from the previous all-time high of 2,458 from November 2021. The index came within three points of clearing its 2025 high of 2,292 and we have mentioned closes above 2,300-2,325 and the 50-day moving average would be a bullish development.

Support is once again at 2,260 followed by 2,225 and 2,175. Monday’s low kissed 2,158 before the intraday reversal and hold of 2,175 and 200-day moving average.

The Nasdaq did fall out of its uptrend channel on Thursday’s close back below 19,500 but reclaimed its momentum following Friday’s action and higher weekly highs. There is the chance for a quick gap up to 20,000-20,250 over the near-term. If the latter is cleared, there is breakout potential up towards 20,500-20,750 and fresh record highs.

The index was down 7% from its all-time high of 20,204 from December 16th to last Monday’s morning’s fade to 18,831. Key support is once again at 19,250 on another move below 19,500.

The S&P nearly closed back inside its previous trading range of 6,000-6,100 that lasted throughout December. We mentioned coming into last week this would be a bullish development with the all-time high just below the latter. There is near-term upside to 6,150-6,200 and the middle of the current uptrend channel on continued closes above 6,100.

Key support is at 5,850 if 5,900 and the 50-day moving average fails to hold this week. The “stretch” to the downside hit 5,773 on Monday’s opening weakness following last Friday’s close below 5,850. This represented a 5% pullback from the December all-time top at 6,099.97.

The Dow traded to a fresh 2025 high while clearing key resistance at 43,250. It was also the third-straight close back inside the current uptrend channel. The index failed to hold its 50-day moving average which is now starting to show signs of curling higher. Continued closes above 44,000 would be a more bullish development for a possible retest towards 45,000 and the December 4th all-time high at 45,073.

The blue-chips were down 7% from the December 4th all-time high of 45,073 on Monday’s dip to 41,844. We mentioned on Thursday morning it might be too early to say if that was a near-term double-bottom, or not, but it certainly looks that way. A close back below 43,000 this week and the bottom of the uptrend channel reopens a quick retest to 42,500.

The Volatility Index (VIX) made lower lows throughout the week following Monday’s peak at 22.04. The bears inability to hold the 20 level into the close that day was also a very bullish signal for the market. We also talked about a retest to 15 being bullish with closes below this level leading to additional weakness towards 13.50-12.75.

A death-cross has officially formed with the 50-day moving average closing below the 200-day moving average. This typically suggests lower lows. Lowered resistance is at 17.50-20.

The first round of financial earnings last week were above Wall Street’s expectations, for the most part, with more coming this week. With the bigger names out of the way, investors will now turn their attention towards Tech and other sectors that could sway market direction.

The stock market is closed on Monday for a holiday with the Presidential inauguration also taking place.