Briefly:

Intraday trade: Our Thursday's intraday outlook was neutral. The S&P 500 index gained 1.4% on that day after opening 0.4% higher. Expectations before the opening of today's trading session are positive, so stocks will probably bounce after yesterday's sell-off. There have been no confirmed positive signals so far. We still prefer to be out of the market, avoiding low risk/reward ratio trades.

Medium-term trade: In our opinion, no medium-term positions are justified.

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

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes lost between 1.9% and 2.7% on Monday, as investors' sentiment worsened again. The broad stock market broke below a week-long consolidation and got closer to February 9 low. The S&P 500 index trades 10.1%  below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 1.9%, and the technology Nasdaq Composite lost 2.9%, as big cap tech stocks remained relatively weaker than the broad stock market.

The nearest important level of resistance of the S&P 500 index is at around 2,590-2,600, marked by last week's support level. The next resistance level is at 2,640, marked by Thursday's daily high. The resistance level is also at 2,650-2,670, marked by previous consolidation and short-term local highs. On the other hand, the nearest important support level is at 2,530-2,550, marked by the early February local low, along with yesterday's daily low of 2,553.80.

We can see that stocks reversed their medium-term upward course following whole retracement of January euphoria rally. Then the market bounced off its almost year-long medium-term upward trend line, and it retraced more than 61.8% of the sell-off within a few days of trading. The uptrend reversed in the middle of March, and then stocks retraced almost all of their February - March rebound. The most likely scenario right now is bearish one, leading us to February low or lower after breaking below medium-term upward trend line. The bullish case is a medium-term double top pattern or breakout higher. Previous week's sell-off made the bearish case much more likely, almost a certainty. Last week's Monday's rally gave bulls another chance, but Tuesday's sell-off took it away. Stocks broke below their short-term consolidation yesterday. You should take notice of a breakdown below rising wedge pattern. This over month-long trading range was an upward correction following late January - early February sell-off:

Bounce Expected

Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.4-0.6% higher vs. their yesterday's closing prices. The main European stock market indexes have lost 0.2-0.8% so far. There will be no new important economic data announcements today. The market will probably bounce after yesterday's move down, but will it get back into last week's trading range? It would be positive but for now, it looks like an upward correction and not some upward reversal. If the S&P 500 index breaks above the level of 2,600, it could continue higher up to resistance level of around 2,640. However, if it fails to move much higher above its yesterday's closing price, sellers would likely drive stock prices lower again, towards the early February medium-term low.

The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following yesterday's intraday rebound off daily low. The nearest important level of support is at around 2,550-2,560. On the other hand, resistance level is at 2,590-2,600, among others. The futures contract is still below its last week's local lows, as the 15-minute chart shows:

Nasdaq Got Back Above 6,400

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates following a rebound off yesterday's daily low. The market got back above the level of 6,400, after selling off to local low of around 6,330. The downtrend accelerated following breakdown below the level of 6,500. Is this some final panic selling before upward reversal or a downtrend leading below early February lows? It is hard to say, but bears are still on the run. The Nasdaq futures contract trades just below its short-term resistance level of 6,450, as we can see on the 15-minute chart:

Apple at Support Level, Amazon at Trend Line, Point of Reversal?

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record high on March 13, but then it reversed the uptrend. We saw negative technical divergences - the most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI or MACD based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. The market formed a negative candlestick chart pattern called "bearish engulfing". It consists of a smaller white candlestick followed by a black candlestick that "engulfs" the white one. This downward reversal pattern has been confirmed. Consequently the market continued its downtrend, as it broke below the upward trend line more than two weeks ago. Since then it accelerated downwards. On Monday we wrote that the price may bounce off support level at $160-165. And it did. Then it reversed lower again, after bouncing off resistance at $175. It continues bouncing off its last week's Monday's local low:

Now let's take a look at Amazon.com, Inc. (AMZN) daily chart. It remains relatively weaker than the broad stock market, as it gets close to medium-term upward trend line. There were some clear negative technical divergences, along with March 13 bearish engulfing downward reversal pattern. The nearest important support level is at around $1,350, marked by the above-mentioned trend line. On the other hand, resistance level is at $1,500, marked by previous level of support, as we can see on the daily chart:

Dow Jones - New Yearly Low

The Dow Jones Industrial Average daily chart shows that blue-chip index was relatively weaker than the broad stock market and much weaker than record-breaking technology stocks recently, as it continued to trade well below late February local high. The market broke below its early March local low on March 22, and it continued towards the early February local low. Yesterday it fell slightly below that low, as it reached new yearly low at the level of 23,344.52, before bouncing off and closing above the level of 23,600. Was it upward reversal or just upward correction before another leg lower? There have been no confirmed positive signals so far. However, a daily closing price above previous Friday's closing price may be a positive signal:

Concluding, the S&P 500 index will likely retrace some of its yesterday's sell-off. However, there have been no confirmed positive signals so far. The broad stock market is still on the edge of breaking below its early February low. Trade war fears, rate hikes worries against coming quarterly earnings releases, Friday's monthly jobs data release. So, we may see more volatility following last week's swings.

The early March rally failed to continue following monetary policy tightening, trade war fears, negative political news. What was just profit-taking action, quickly became a meaningful downward reversal. Breakdown below over-month-long rising wedge pattern made medium-term bearish case more likely, and after some quick consolidation, the index accelerated lower. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come.

Currently, we prefer to be out of the market, avoiding low risk/reward ratio medium-term trades. We will let you know when we think it is safe to get back in the market.

To summarize: no medium-term positions are justified from the risk/reward perspective at this moment.

Intraday trade:

No intraday position is justified from the risk/reward perspective today.

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts