S&P 500 and Nasdaq: Profit-Taking Hits US Stocks as Oil Surges

Stocks Pull Back as Oil Jumps and Iran Deal Hopes Fade

Stocks are under pressure this afternoon as oil jumped about 4% and Iran deal optimism faded fast. Reports that Vice President JD Vance paused his trip to join negotiations combined with tough comments from Trump put traders back on edge. Buyers stepped aside and the market gave back some of its recent gains.

This still looks like a pause after a strong rally. Stocks were at record highs coming into Tuesday. Some profit taking after a move like that isn’t surprising. Strong earnings and solid revenue growth are still the bigger picture story. Near term direction depends on the Iran headlines and where oil goes from here.

S&P 500 Set-Up for Meaningful Correction

The benchmark S&P 500 Index is trading lower shortly after the mid-session on Tuesday. Sellers came in at 7137.27 after the buying dried up, close to the record high at 7147.52. If the downside momentum persists, sellers could try to fill the gap down to 7008.52. If that fails then we’re likely headed into the previous all-time high at 7002.28, virtually trapping a number of bulls who bought the breakout on April 15.

There’s no panic and the trade appears to be normal liquidation following any other rally I’ve seen before. However, since this rally was pretty steep by nearly all measurement, don’t be surprised if it falls just as fast.

The short-term range is 6790.02 to 7147.52. Its retracement zone at 6968.77 to 6926.59 is a reasonable downside target. In fact, with the main trend up, I expect to see new buyers step in at this zone.

Trader reaction to the 61.8% level at 6926.59 will actually set the tone into the end of the month. If it fails, prices could collapse hard with support clustered at the 50-day moving average at 6778.51, the 50% level at 6732.21, the 200-day moving average at 6692.25 and the 61.8% level at 6634.20.

Nasdaq Composite Forming Closing Price Reversal Top

The pattern in the Nasdaq Composite Index (IXIC) is even more bearish. It is forming a dramatic closing price reversal top at 24537.58. Unlike the SPX that had sellers coming in ahead of the record high, sellers in the IXIC came in as it was making a new all-time high.

If confirmed, this chart pattern could lead to a 2-3 day correction, equal to 50% to 61.8% of the last rally from 22795.82. This makes 23666.70 to 23461.17 the next potential downside target. Like the SPX, we could see a technical bounce from this zone.

But if 23461.17 is taken out with conviction, the selling could extend all the way down to the moving averages and the retracement zone that launched this rally. These levels include the 50-day moving average at 22615.14, the 50% level at 22613.92, the 200-day moving average at 22542.03 and the 61.8% level at 22159.93.

If you can handle the risk and the give back of profits, take your chances. If you bought the breakout over the previous record high at 24019.99, realize you could get caught in a bull trap. And without an exit strategy, the market will tell you where to get out and it usually isn’t pretty.

More Information in our Economic Calendar.