Briefly:
Intraday trade: Our Thursday's intraday trading outlook was neutral. The S&P 500 index opened 0.2% higher and closed 0.5% higher. The market broke above its two-day-long consolidation, but not by much. So, our yesterday's intraday outlook proved quite accurate. Stocks will probably extend their short-term fluctuations following today's economic data releases. 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 main U.S. stock market indexes gained 0.4-0.5% on Thursday, as investors' sentiment slightly improved despite global trade war fears. The S&P 500 index broke above its two-day-long consolidation, following Wednesday's bounce off 2,700 mark. It currently trades 4.7% below January 26 record high of 2,872.87. Both Dow Jones Industrial Average and the technology Nasdaq Composite gained 0.4% yesterday.
The nearest important level of resistance of the S&P 500 index is at 2,740-2,750, marked by 61.8% retracement of the late January - early February move down at 2,742.92, among others. On the other hand, support level is now at 2,730, marked by recent consolidation. The next level of support is at around 2,700. The market extends its almost month-long consolidation following February rebound.
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:
Flat Expectations
The index futures contracts trade 0.1% higher vs. their Thursday's closing prices. So, expectations before the opening of today's trading session are virtually flat. The European stock market indexes have been mixed so far. Investors will wait for some important economic data announcements: Nonfarm Payrolls, Unemployment Rate at 8:30 a.m., Wholesale Inventories at 10:00 a.m. Will those data releases drive the whole stock market higher? It seems that yesterday's buyers were hoping for some sentiment improvement today. We may see an increased volatility, and the market may continue to fluctuate within its month-long consolidation.
The S&P 500 futures contract trades within an intraday consolidation after yesterday's intraday move up. It trades closer to resistance level of 2,750-2,760 following breakout above the level of 2,730. On the other hand, support level is at 2,720-2,730, and the next important level of support is at 2,700-2,710, among others. The futures contract trades at new local highs, partly due to contract series roll-over from March to June:
Nasdaq Closer To Late January Record High
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation along the level of 7,000. Tech stocks remain relatively stronger than the broad stock market. The market is close to its late January record high at around 7,050. Will it continue its multi-year bull market? Or form some bearish double top medium-term pattern? It's hard to say - it depends on the overall market direction. The nearest important level of support is at around 6,950-6,970, among others. On the other hand, resistance level is at the above-mentioned record high of around 7,050. The Nasdaq futures contract is above its short-term upward trend line, as we can see on the 15-minute chart:
Amazon at New Record High and Apple just Fluctuates
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 more than 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 level of $172.50 again. The price continues to trade within a short-term consolidation:
Amazon.com, Inc. stock (AMZN) reached yet another new record high yesterday, as it extended its 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 at 25,000 Resistance
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 two weeks ago, but it failed to continue higher. 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. Consequently, the index broke below 25,000 mark. Since then, it was retracing some of this decline, but it remained relatively weaker than the broad stock market last week. Will it break above 25,000 mark again? It continues to trade just below that resistance level:
Concluding, the S&P 500 index gained 0.5% on Thursday, as it broke slightly above its two-day-long consolidation. Investors will wait for today's monthly jobs data release, but will it drive stock prices higher? The market remained bullish yesterday, despite some potential global trade war fears. Today, we may see more uncertainty. The S&P 500 index may continue to fluctuate below its late February local high.
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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