Despite some selling this week, many key stocks are off to a decent start for the new year. The major indexes are only slightly green year-to-date, but some widely held names are moving in the right direction.
Stocks that were out of favor last year hit the ground running, as tax-loss selling for 2023 has abated. Names like Apple (AAPL) , Alphabet (GOOGL) , and Tesla (TSLA) have gained 3% to 6%. Amazon (AMZN) is up by about 12%, and Meta Platforms (META) has climbed nearly 14%.
But not all of the news is good. On the S&P 500's chart, a bearish trendline has capped the index since early last year (black dotted line). This week, the S&P 500 was once again rejected on that trendline, which now rests just above 4000. A sequence of lower highs (LH) is visible on the chart, with a fresh potential lower high occurring this week (red LH).
The first key area to watch is a band of support in the 3800 area (shaded yellow, point A), which forms a potential higher low (red HL). That band stretches from 3764 to 3851. If that band holds, the table will be set for a bullish breakout.
The second key area is point B (blue line). This comes in at 4100, and represents the high from Dec. 1, and from Dec. 13. Within the context of the downtrend, it's a lower high.
A break above 4100 requires a break above the bearish trendline that has capped the S&P 500 for just over a year. If the S&P 500 can close above 4100, a higher high will appear on the chart.
If 3800 holds and 4100 is surpassed, we'll have a higher high and a higher low, indicating a new uptrend.
This makes an entry on a breakout above 4100 ideal for fresh long positions. It also removes the guesswork and creates a game plan for those who are thinking of stepping in now, but aren't sure how to proceed.
All of the stocks listed above are scheduled to report earnings in the coming weeks, so there's no good reason for investors to open new positions in these names right now.
Instead, wait for the dust to settle: 3764 is unlikely to break without institutional selling, and 4100 is unlikely to achieved without institutional buying. Instead of guessing, allow the market to choose its direction before committing to a position.