Briefly:

Intraday trade: The S&P 500 index lost 2.0% on Monday, after opening 0.2% lower. The broad stock market will probably open higher today. We may see an upward correction within a short-term downtrend.

Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.

Our short-term outlook is neutral, and our medium-term outlook is neutral:

Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes lost 2.0-2.8% on Monday, retracing more of their recent advance, as investors' sentiment worsened again. The S&P 500 index got back below its Friday's daily gap up of 2,794.10-2,794.99. Then it broke below 2,750. The index was 11.5% below September the 21st record high of 2,940.91 on Monday two weeks ago. And now it trades 7.3% below the all-time high. The Dow Jones Industrial Average lost 2.3% and the Nasdaq Composite lost 2.8% on Monday.

The nearest important level of resistance of the S&P 500 index is now at around 2,755-2,775, marked by the recent support level. The next resistance level remains at 2,795-2,800, marked by Friday's daily gap down of 2,794.10-2,794.99, among others. The resistance level is also at 2,815-2,820, marked by mid-October local high of 2,816.94. On the other hand, the support level is at 2,700-2,720, marked by the previous short-term consolidation. The support level is also at 2,685, marked by the late October daily gap up.

The broad stock market extended its downtrend around two weeks ago, as the S&P 500 index fell closer to 2,600 mark. Then it bounced sharply and accelerated higher. On Wednesday we wrote that if the index breaks above 2,750, we could see more buying pressure. And the market got back above the broken long-term upward trend line. It was also back above 2,800 mark again. Then the index bounced off its mid-October local high and quickly reversed its uptrend. It sold off yesterday, as big cap tech stocks led the way lower:

Positive Expectations, Just Rebound?

Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.7-0.9% above vs. their yesterday's closing prices. The European stock market indexes have gained 0.2-0.8% so far. There will be no new important economic data announcements today. The broad stock market will likely retrace some of its yesterday's decline. However, the market trades within a short-term downtrend again. And there have been no confirmed positive signals so far.

The S&P 500 futures contract trades within an intraday consolidation, following an overnight bounce off its yesterday's local low. The nearest important level of support is at around 2,715-2,720. On the other hand, the resistance level is at 2,750, among others. The futures contract trades below its recent local low, as the 15-minute chart shows:

Nasdaq Also Slightly Higher

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its yesterday's sell-off. The market accelerated the short-term downtrend after breaking below 7,000 mark. The nearest important level of support is at around 6,800. On the other hand, the resistance level is at 6,900. The Nasdaq futures contract remains below its short-term downward trend line, as we can see on the 15-minute chart:

Tech Stocks Selling Off Again

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It accelerated its downtrend yesterday following breaking down below the support level of around $200. It was relatively weaker than the broad stock market recently, as investors continued to react to the quarterly earnings release. The stock fell the lowest since the late July. Yesterday we wrote that "it looks like an upward correction before another leg lower". And we were right. The next important level of support is at $185-190. We may see an attempt at bouncing off that support level:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It accelerated its sell-off following quarterly earnings release in the late October. The stock continued lower, but then it bounced off the support level of $1,500. The price reached a potential resistance level of around $1,750-1,800 before reversing lower. Yesterday, the stock retraced some more of its recent advance. For now, it looks like a downward correction:

Dow Jones Sharply Lower

The Dow Jones Industrial Average fell below its last Wednesday's daily gap up, following the broad stock market's sell-off. It accelerated above 26,000 mark and got closer to the early October topping consolidation recently. Then the blue-chip stocks gauge retraced most of the rally. The nearest important level of resistance is now at 25,750-26,000, and the support level is at 25,000-25,250:

The S&P 500 index retraced its last week's rally following breaking above the resistance level of 2,750. Is this a new downtrend or just quick downward correction? The market may continue to fluctuate within a volatile month-long consolidation after the early October sell-off. The broad stock market index is at its long-term upward trend line again.

Concluding, the S&P 500 index will probably open higher today, as investors' sentiment improved following an overnight bounce. But for now it looks like an upward correction within a downtrend. We may see some more short-term volatility.

Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.

Thank you.

Paul Rejczak
Stock Trading Strategist
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