Dow Jones, S&P 500, and Nasdaq continue to trade near record highs, is it time for a trend reversal?

Strong corporate earnings boosted optimism around the U.S. stock market, and the three major U.S. stock indexes continue to trade near record highs even though the University of Michigan reported that the preliminary consumer sentiment index fell to 70.2, its lowest level in a decade. Investors are concerned that the U.S. economy could be hit by the fast-spreading Delta variant of the coronavirus together with further new variants, especially ones that might not be stopped by existing vaccines.

Another negative news is that some Fed officials warned it is nearly time for the central bank to begin pulling back on its monetary support, including the tapering of its asset purchases. Several Fed officials expect hikes sooner than previously anticipated because inflation accelerated above acceptable levels, and investors will continue to pay attention to the bank’s commentary looking for any clues.

On the other side, the U.S. Federal Reserve has achieved sustainable employment; the weekly unemployment claims contracted to 375K in the first week of August following an impressive July Nonfarm Payroll report.

“The Federal Reserve is likely to announce its intention to pare bond purchases in December, with reductions to begin in January, which should push Treasury yields higher as investors prepare for rate hikes sooner rather than later. Preparation for rate hikes is likely to be more important than supply and demand factors in impacting the direction of yields,” Morgan Stanley reported on Friday.

If FED decides to tighten its current policy, the U.S. stock indices will probably be at lower price levels because the current ultra-loose monetary policy is good for risk-takers.

S&P 500 advanced to record highs on Friday

 S&P 500 (SPX) advanced to record highs on Friday, and if the price jumps above 4,500 points, the next target could be around 4,600 points.

Data source: tradingview.com

The current support level stands at 4,300 points, and if the price breaks it,  we have the open way to 4,100 points.

Dow Jones achieved closing records on Friday

The Dow Jones Industrial Average (DJIA) achieved closing records on Friday and notched a second straight week of gains. Strong corporate earnings boosted optimism around the U.S. stock market, and if the price jumps above 35,800 points, the next target could be around 36,000 points.

Data source: tradingview.com

On the other side, investors are concerned that the U.S. economy could be hit by the fast-spreading Delta variant of the coronavirus, and if the price falls below 35,000 points, it would be a firm “sell” signal.

Nasdaq Composite down -0.09% on a weekly basis

The Nasdaq Composite (COMP) has lost -0.09% on a weekly basis and closed at 14,822 points.

Data source: tradingview.com

The Nasdaq Composite continues to trade in a bull market, and if the price jumps above 15,000 points, it would be a bullish confirmation for this index. The current support level stands around 14,500 points, and if the price falls below this level, it would be a strong “sell” signal, and we have the open way to 14,000 points.

Summary

Dow Jones, S&P 500, and Nasdaq continue to trade in a bull market despite the fact that the University of Michigan reported that the preliminary consumer sentiment index fell to its lowest level in a decade. Morgan Stanley reported on Friday that the Federal Reserve is likely to announce its intention to pare bond purchases in December.

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