Briefly:

Intraday trade: Our Thursday's intraday trading outlook was bearish. The market opened 0.6% higher, as it extended its rally off Wednesday's local low. Then it continued even higher, but overall it gained 0.6% from its opening price. The index didn't reach our stop-loss level of 2,735. We still can see short-term overbought conditions along with negative technical divergences. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,770 and potential profit target is at 2,680 (S&P 500 index).

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

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

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

The main U.S stock market indexes gained between 1.2% and 1.6% on Thursday, extending their short-term uptrend, as investors' sentiment further improved following economic data releases, among others. The S&P 500 index broke slightly above its last week's Wednesday's local high of 2,727.67. The broad stock market has retraced its whole Wednesday-Friday's sell-off. It currently trades 4.9% below January 26 record high of 2,872.87. The Dow Jones Industrial Average gained 1.2%, and the technology Nasdaq Composite gained 1.6% yesterday.

The nearest important level of resistance of the S&P 500 index is now at around 2,740, marked by 61.8% retracement of the whole move down off late January record high (2,742.92). The next level of resistance is at around 2,760-2,765, marked by previous local high. On the other hand, support level is at 2,700, and the next level of support remains at 2,650, among others.

The index reached its record high more three weeks ago on Friday, January 26. It broke below month-long upward trend line, as it confirmed uptrend's reversal. Then the broad stock market gauge retraced all of its January rally and continued lower. The index extended its downtrend a week ago on Friday, as it fell almost 12% below the late January record high. We can see that stocks reversed their medium-term upward course following the whole retracement of last month's euphoria rally. However, the market bounced off its almost year-long medium-term upward trend line last Friday, and it retraced almost 61.8% of the sell-off within a few days of trading. Is this still just an upward correction or uptrend leading to new all-time highs? For now, it still looks like an upward correction:

Will Uptrend Continue Ahead oF Long Holiday Weekend?

The index futures contracts are trading 0.2-0.3% higher vs. their Thursday's closing prices right now. It means that investors' expectations ahead of the opening of today's trading session are positive. The European stock market indexes have gained 0.6-0.8% so far. Will the sentiment remain bullish after cash market opening at 9:30 a.m.? For now, it looks like the market may extend its short-term uptrend but an intraday downward correction seems likely at some point. Investors will wait for economic data announcements today: Housing Starts, Building Permits at 8:30 a.m., Michigan Sentiment number at 10:00 a.m. Investors will also wait for more quarterly corporate earnings releases.

The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following overnight move up and continuation of its rebound off Wednesday's local low. It trades closer to 2,750 mark. The nearest important level of resistance is at 2,750-2,760. On the other hand, support level is at around 2,730, marked by short-term consolidation. The next level of support is at 2,700-2,720, marked by some recent fluctuations. The futures contract trades above its week-long upward trend line, as we can see on the 15-minute chart:

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract follows a similar path, as it trades within a consolidation this morning. The market broke above the level of 6,800 following strong rebound off Wednesday's local low below the level of 6,500. So, volatility remains relatively high after the early February sell-off followed by week-long rebound. Will the price continue higher despite some short-term overbought conditions? It may correct a part of this rally at some point. The nearest important level of resistance is at around 6,850, and the next resistance level is at 6,880-6,900. On the other hand, support level is at 6,750-6,800, among others. The Nasdaq futures contract fluctuates following week-long advance, as the 15-minute chart shows:

Apple Accelerates Uptrend, Amazon Closer To Record High Again

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It was one of the recent stock market rout's main drivers. The stock reached new record high a month ago. Then it failed to continue higher and consequently retraced its January advance. It fell close to support level of $150 last Friday. Since then, it trades within a relatively strong uptrend. Will it break above resistance level of $175-180? The market reached its previously broken upward trend line yesterday:

Amazon.com, Inc. stock (AMZN) was relatively strong vs. the broad stock market recently. Despite an overall weakness, it was extending its month-long rally up until Friday over a week ago and its new record high at around $1,500 mark. The stock continues to trade well above its end of year closing price of $1,167.5. AMZN bounced off its upward trend line last Friday, following downward correction below the price of $1300. Will it continue towards new record highs? Depends on what the whole stock market does in the near future, but this stock continues to act pretty bullish:

The Dow Jones Industrial Average daily chart shows that blue-chip index broke below its short-term consolidation three weeks ago. The price sharply accelerated its downtrend, as it broke below the level of 25,500 and continued towards 24,000 mark. There were some medium-term negative technical divergences - the most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI 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 DJIA fell below 23,500 on Friday a week ago. We saw positive candlestick chart pattern on Friday. The market formed bullish harami. It is a pattern in which a large black candlestick is followed by a smaller white candlestick with body located within the body of a preceding day. Since then, it continues higher. However, the blue-chip index remains slightly below its last week's rebound local high:

Concluding, the S&P 500 index extended its short-term uptrend yesterday despite some technical overbought conditions after a rally off last week's Friday's low. The market broke above 50% retracement of its move down from January 26 all-time high at 2,872.87. But will it continue higher? It may open slightly higher, but we will probably see some short-term uncertainty and profit taking.

The broad stock market was retracing almost 12% off its late January record high on Friday, before an intraday reversal. Was this some final panic selling ahead of major upward reversal? Tuesday-Wednesday's rally was just "dead cat bouncing" upward correction. On Friday, we wrote that the market may find some short-term support at around its medium-term upward trend line, which was at 2,550. It came true, as the index bounced off support along the level of 2,530-2,550. The market extends the rebound from Friday's low, but it is still below its last Wednesday's local high.

The broad stock market retraced its whole month-long January rally and continued lower, the lowest since early October. So, medium-term picture is now bearish. Investors took profits off the table following the unprecedented month-long rally, but then they began selling in panic. It was quite similar to 2010 Flash Crash event. Is this just downward correction or the beginning of a new medium-term downtrend? This sell-off set the negative tone for weeks or months to come.

The S&P 500 index traded around 7.5% above its December 29 yearly closing price on Friday January 26. This almost month-long rally seemed unprecedented. The legendary investor John Templeton once said that "bull markets are born on pessimism, grow on skepticism, mature on optimism and die on euphoria”. So, now it looks like it was an euphoria phase of the nine-year-long bull market. Did it die over a week ago? It's hard to say, but new record highs scenario seems unlikely now.

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:

S&P 500 index - short position: profit target level: 2,680; stop-loss level: 2,770,
S&P 500 futures contract (September) - short position: profit target level: 2,680; stop-loss level: 2,770
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $267.6; stop-loss level: $276.6

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

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts