Briefly:
Intraday trade: The S&P 500 index lost 0.3% after opening virtually flat on Monday. The broad stock market will likely open higher today. Then we may see some more short-term volatility.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Our short-term outlook is neutral, and our medium-term outlook is 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 -1.6% and 0.0% on Monday, as investors hesitated following the recent sell-off. The S&P 500 index fell the lowest since the first half of March again. It currently trades 7.1% below its May the 1st record high of 2,954.13. The Dow Jones Industrial Average was unchanged and the Nasdaq Composite lost 1.6% on Monday.
The nearest important resistance level of the S&P 500 index remains at around 2,765-2,775, marked by its Friday's daily gap down of 2,768.98-2,776.74. The next resistance level is at 2,795-2,800, marked by the Wednesday's daily gap down of 2,792.03-2,801.58. On the other hand, the support level is at 2,720-2,725, marked by the early March local low.
The broad stock market broke above the last year's high in the early May. But then the index retraced all of the April's advance. The market also broke below its two-month-long upward trend in the early May. Then the index fell below the 2,800 mark on Wednesday and it accelerated its month-long decline on Friday, as we can see on the daily chart:
Short-Term Consolidation
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.4% above their Monday's closing prices. The European stock market indexes have gained 0.2-0.7% so far. Investors will wait for the Factory Orders number release at 10:00 a.m. They will also wait for a speech from the Fed Chair Powell at 9:55 a.m. The broad stock market will likely retrace some more of their recent decline this morning. But for now, it looks like an upward correction within a downtrend.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces its yesterday's decline. The nearest important resistance level is now at around 2,765-2,770, marked by the short-term local highs. On the other hand, the support level is at 2,730-2,735. The futures contract trades along its yesterday's local high this morning, as the 15-minute chart shows:
Nasdaq Also Going Sideways
The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of the sell-off this morning. It remains relatively weaker than the broad stock market. The nearest important support level is at 6,950-7,000. On the other hand, the resistance level is at 7,100, among others. The Nasdaq futures contract remains below the week-long downward trend line, as we can see on the 15-minute chart:
Microsoft Broke Lower
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock extended its rally on May the 1st following the quarterly earnings release. Then the price reversed the upward course and broke below the medium-term upward trend line. Since then it continues trading within a downtrend. There have been no confirmed positive signals so far. However, we can see some short-term technical oversold conditions:
Now let's take a look at the daily chart of Microsoft Corp. (MSFT). The stock accelerated its uptrend in late April, as it reached the new record high of $131.37. Since then, the market was trading within a consolidation. On Friday it got back to the previous low, and yesterday it broke below the support level. The next important support level is at $110-115:
Dow Jones Relatively Stronger
The Dow Jones Industrial Average has been relatively weaker than the broad stock market since February. The resistance level remained at around 26,800-27,000, marked by the last year's topping pattern and the record high of 26,951.8. Last week the blue-chip stocks' gauge followed the broad stock market, as it accelerated the downtrend. The market broke below its important 200-day moving average, and on Friday it fell below 25,000 mark. There have been no confirmed positive signals so far:
The S&P 500 index accelerated its short-term downtrend on Friday, as it fell below the Wednesday's local low. Yesterday the broad stock market extended its sell-off, before rebounding and closing just 0.3% lower. Was it a local bottom? For now, it looks like an upward correction within a downtrend.
Concluding, the S&P 500 index will likely open higher today. The market may retrace some of its recent decline. And we could see more short-term volatility.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Thank you.
Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care
