Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was neutral. The S&P 500 index opened and closed 0.3% higher on that day. So, our intraday outlook proved quite accurate. The market slightly extended its short-term uptrend, but it failed to continue much higher above Monday's daily high. Stocks will probably fluctuate following lower opening of the trading session today. Therefore, 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

Yesterday's trading session did not bring any notable changes, as the main U.S. stock market indexes were mixed between 0.0% and +0.6% vs. their Monday's closing prices. The S&P 500 index fluctuated following Monday's advance of 1.1%. It is currently trading 5.0% below January 26 record high of 2,872.87. The Dow Jones Industrial Average was unchanged, and the technology Nasdaq Composite gained 0.6% on Tuesday.

The nearest important level of resistance of the S&P 500 index is at around 2,730, marked by recent local highs. The resistance level is also at 2,740-2,750, marked by Fibonacci's 61.8% retracement of the late January - early February move down at 2,742.92. On the other hand, support level is at 2,690-2,700, marked by recent resistance level. The support level is also at 2,650-2,660, marked by last week's local low.

The S&P 500 index reached its record high on 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 on February 9, as it was almost 12% below the late January record high. 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. Is this just an upward correction or uptrend leading to new all-time highs? The market seems to be in the middle of two possible future scenarios. The bearish case leads us to February low or lower after breaking below medium-term upward trend line, and the bullish one means potential double top pattern or breakout above the late January high. However, the most likely scenario may be that stocks go sideways for a while:

Negative Expectations

The index futures contracts are trading between -0.9% and -1.2% vs. their Tuesday's closing prices right now, so investors' expectations before today's cash market open are very negative. The main European stock market indexes have been mixed so far. The market may retrace some of its advance from Friday's local low. Was this just an upward correction within a new downtrend? It looks like stocks may extend their fluctuations after late January - early February sell-off followed by relatively quick rebound. Investors will now wait for some economic data announcements: ADP Non-Farm Employment Change number at 8:15 a.m., Crude Oil Inventories at 10:30 a.m., Fed's Beige Book release at 2:00 p.m.

The S&P 500 futures contract is within an intraday consolidation following yesterday's sell-off after Gary Cohn's resignation's new release. The nearest important level of resistance is at around 2,700-2,750, marked by local highs. The next level of resistance is at 2,720-2,730, marked by short-term consolidation. On the other hand, support level is at 2,680-2,685, marked by local lows. The futures contract is well below its yesterday's trading range, as the 15-minute chart shows:

Nasdaq Also Lower

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates following yesterday's after-hours move down. The nearest important level of resistance is at 6,860-6,870, and the next resistance level is at 6,880-6,900. On the other hand, support level remains at 6,800-6,820, marked by intraday local lows. The market retraced more of its recent rally last week. A rally that retraced most of its severe late January - early February decline. Then it bounced off Friday's local low, and retraced some of its last week's decline. The market extends its fluctuations following February volatility. The Nasdaq futures contract trades below its short-term upward trend line, as we can see on the 15-minute chart:

Apple Goes Sideways, Amazon at New Record High

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It was one of February stock market rout's main drivers. Then it led broad stock market rebound rally. It fell close to support level of $150 on February 9. Since then it was retracing its early February losses. The market reached new record high a week ago, as it was trading above $180 mark again. Then it reversed its advance. On Friday it continued lower but then it bounced off support of $172.50 level again. The market trades within a short-term consolidation, after rebounding off support level:

Amazon.com, Inc. stock (AMZN) reached new record high yesterday, as it extended its recent gains above $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 a month ago following downward correction below the price of $1,300. We can see some negative technical divergences along with overbought conditions, but the stock is still remarkably stronger than the broad stock market:

Dow Jones Still Relatively Weaker

The Dow Jones Industrial Average daily chart shows that blue-chip index reversed its three-week-long rally from February 9 low. The market broke above the resistance level of around 25,500 over a week ago, but it failed to continue higher. It closed much lower on Tuesday following higher open. We saw potential negative candlestick pattern called Dark Cloud Cover. It is a pattern in which the uptrend continues with a long white body, and the next day it reverses following higher open and closes below the mid-point between open and close prices of the previous day. This negative downward reversal pattern has been confirmed by Wednesday's move down. Consequently, the index broke below 25,000 mark on Thursday. Since then, it was retracing some of this decline, but it remained relatively weaker than the broad stock market. It looks like a correction within a downtrend:

Concluding, the S&P 500 index slightly extended its short-term uptrend yesterday, as it gained 0.3% vs. Monday's closing price. The market remained above the level of 2,700 following Monday's breakout higher. However, stocks are expected to open much lower today after yesterday's Gary Cohn's resignation news. The index may fluctuate along the level of 2,700 again. Will it continue much lower? Probably not. We may see some consolidation above late last week's local lows.

The broad stock market was falling almost 12% off its late January record high on February 9 before an intraday reversal. It was a final panic selling ahead of short-term upward reversal, and the market found a support of its medium-term upward trend line, which was at 2,550. The S&P 500 index retraced its whole month-long January rally and fell the lowest since early October. Then it retraced more than 61.8% of this relatively quick and deep sell-off. So, medium-term picture is now neutral. 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. This sell-off set the negative tone for weeks or months to come, despite recent broad stock market rebound.

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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