Briefly:
Intraday trade: The S&P 500 index gained 0.6% on Thursday, after opening virtually flat. The broad stock market will probably open higher today. We may see some more fluctuations along the support level. 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
The U.S. stock market indexes gained between 0.4% and 0.8% on Thursday, as the investors' sentiment improved once again. The S&P 500 index bounced off 2,700 mark and it currently trades 5.4% below the January's 26th record high of 2,872.87. The Dow Jones Industrial Average gained 0.4% and the technology Nasdaq Composite gained 0.8% on Thursday.
The nearest important level of resistance of the S&P 500 index remains at around 2,740-2,750, marked by the previous support level along with Monday's daily gap down of 2,742.94-2,752.68. The next resistance level is at 2,780-2,800, On the other hand, the support level is at around 2,695-2,700, marked by the recent daily lows. The support level is also at 2,675-2,680, marked by the late May local low.
The broad stock market accelerated its short-term downtrend on Monday, as the S&P 500 index fell the lowest since the end of May. Will the downtrend continue? Or was it some final panic selling before an upward reversal? It's hard to say. If the index breaks below 2,700 mark, we could see more downward action. 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:
More Upside Action Today?
The index futures contracts trade 0.3-0.4% higher vs. their yesterday's closing prices. So expectations before the opening of today's trading session are quite positive. The European stock market indexes have gained 0.8-1.1% so far. Investors will wait for some economic data announcements today: Personal Spending, Personal Income numbers at 8:30 a.m., Chicago PMI at 9:45 a.m., Michigan Sentiment at 10:00 a.m. The broad stock market will likely extend its yesterday's bounce today, but then we may see more short-term fluctuations above the support level. Is this a bottoming pattern before an upward reversal or just a relatively flat correction before another leg lower? For now, it looks like a correction within a short-term downtrend. There have been no confirmed positive signals so far.
The S&P 500 futures contract trades within an intraday uptrend, as it slightly extends its overnight advance. The nearest important level of resistance is at around 2,730-2,740, marked by the local highs. On the other hand, the support level is at around 2,690-2,705, marked by the recent local lows. The futures contract remains below its recent local lows, as we can see on the 15-minute chart:
Nasdaq Still Above 7,000
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. It retraced its yesterday's decline, but it remains within the short-term consolidation. The market is close to the resistance level of around 7,100-7,150 again. On the other hand, support level remains at 6,950-7,000. The level of support is also at 6,900. The Nasdaq futures contract extends its short-term fluctuations, as the 15-minute chart shows:
Apple, Amazon - Short-term Upward Reversals?
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It trades within a short-term downtrend since the beginning of the month. The decline accelerated on Monday, as price got closer to a potential support level of $180. Then it rebounded and got close to its downward trend line again. Will it continue lower? We can see the attempts at breaking above the downward trend line:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It reached the new record high on Thursday a week ago, as it was relatively much stronger than the broad stock market. Then it reversed its uptrend on Friday and accelerated lower. We saw negative technical divergences in the recent days. They signaled a potential downward reversal. The level of resistance remains at around $1,700, and the price keeps bouncing off $1,650:
Dow Jones Bounces Off 24,000
The Dow Jones Industrial Average broke below its two-month-long upward trend line two weeks ago. Then it continued lower, as it fell below the level of 24,500 a week ago on Thursday. The blue-chip index accelerated its short-term downtrend on Monday. Since then it fluctuates along a potential support level of around 24,000-24,250. The market trades slightly below its 200-day moving average:
The S&P 500 index fell the lowest since the end of May yesterday, but it closed positive. So is this a bottoming pattern before some upward reversal or just relatively flat correction within a downtrend? The market keeps bouncing off the support level of around 2,700. But will it break higher? There have been no confirmed positive signals so far.
Concluding, the broad stock market will likely open higher today. However, we may see some more short-term uncertainty. The S&P 500 index continues to fluctuate along the support level of 2,700. If it breaks lower, we could see more selling pressure. For now, it looks like a downward correction within the medium-term consolidation.
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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