Briefly:
Intraday trade: The S&P 500 index gained 0.3% on Monday, after opening 0.1% higher. The broad stock market will probably retrace some of its recent advance today. So the index will bounce off the resistance level of around 2,800 again. We 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 were mixed between 0.0% and +0.6% on Tuesday, as investors' sentiment remained bullish following the recent rally. The S&P 500 index has bounced off the resistance level of around 2,800. It currently trades just 2.7% below the January's 26th record high of 2,872.87. The Dow Jones Industrial Average gained 0.6% and the technology Nasdaq Composite was unchanged on Tuesday.
The nearest important level of support of the S&P 500 index is now at around 2,785, marked by yesterday's daily gap up of 2,784.65-2,786.24. The next support level is at 2,765-2,770, marked by Monday's daily gap up of 2,764.41-2,768.51. On the other hand, the resistance level remains at 2,795-2,800, marked by the local highs from February, March and June. The level of resistance is also at 2,840, marked by January the 30th daily gap down.
The broad stock market broke above its recent trading range on Friday. Is this a new uptrend or just more medium-term fluctuations following January-February sell-off? If the S&P 500 index breaks above 2,800 mark, we could see more buying pressure. Perhaps we could see a move to new record high. However, there are still two possible medium-term scenarios - bearish that will lead us below the February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or a breakout towards 3,000 mark. There is also a chance that the market will just go sideways for some time, and that would be positive for bulls in the long run (some kind of an extended flat correction). The S&P 500 index broke below its two-month-long upward trend line recently, but it continued to trade above the level of 2,700:
Negative Expectations, Correction So Far
Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.7-0.9% below their Tuesday's closing prices. The main European stock market indexes have lost 1.2-1.4% so far. Investors will wait for the economic data announcements today: Producer Price Index at 8:30 a.m., Crude Oil Inventories at 10:30 a.m. The broad stock market will probably retrace some of its recent advance today. For now, it looks like a downward correction within a short-term uptrend. There have been no confirmed negative signals so far.
The S&P 500 futures contract trades within an intraday consolidation following an overnight decline. The nearest important level of support is at around 2,765-2,770, marked by the local lows. On the other hand, resistance level is at 2,785-2,790, marked by the recent fluctuations. The futures contract bounced off the resistance level of around 2,800, as we can see on the 15-minute chart:
Nasdaq Also Lower
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market bounced off the resistance level of around 7,300-7,360, marked by the June's record high. On the other hand, support level is at around 7,150-7,200. The Nasdaq futures contract retraced some of its recent rally, as the 15-minute chart shows:
Apple, Amazon - More Uncertainty
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock slightly extended its Monday's advance yesterday.
Will it continue higher? There's a resistance level of around $190-195, so we may see more short-term uncertainty. On the other hand, support level is now at around $185, marked by the previous level of resistance:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It got closer to June the 21st record high of $1,763.10 yesterday. But we can see some short-term uncertainty, as investors take profits off the table here. We also can see medium-term negative technical divergences. However, there have been no confirmed negative signals so far:
Dow Jones Still Relatively Stronger
The Dow Jones Industrial Average broke below its two-month-long upward trend line in the late June. Then it continued lower, as it fell below the level of 24,500. The blue-chip index kept bouncing off a potential support level of around 24,000-24,250 recently. It continued to trade along its 200-day moving average which eventually acted as a support level. Then on Monday the index broke above the resistance level of around 24,500. There have been no confirmed negative signals so far:
The S&P 500 index extended its short-term uptrend yesterday, as it got closer to the recent months' local highs along the level of 2,800. But is this an uptrend leading to new medium-term highs? If the S&P 500 index breaks above 2,800, we could see a move towards the January highs. Overall, the market is closer to breaking above its medium-term consolidation again.
Concluding, the broad stock market will probably open lower today following an overnight trade tariffs announcement. We may see some short-term uncertainty, as the S&P 500 index trades close to its last month's high. For now, it looks like a correction within an uptrend.
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
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