Briefly:

Intraday trade: Our Tuesday's intraday outlook was neutral. The S&P 500 index gained 1.3% after opening 0.4% higher. Expectations before the opening of today's trading session are negative and stocks will probably retrace their yesterday's rebound. There have been no confirmed positive signals so far. We still 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 between 1.0% and 1.7% on Tuesday, as investors' sentiment improved after Monday's sell-off. The broad stock market gauge got back above the level of 2,600. The S&P 500 index trades 9.0%  below January 26 record high of 2,872.87. The Dow Jones Industrial Average gained 1.7%, and the technology Nasdaq Composite gained 1.0%, as big cap tech stocks remained relatively weaker than the broad stock market.

The nearest important level of resistance of the S&P 500 index is now at around 2,640, marked by Thursday's daily high. The resistance level is also at 2,650-2,670, marked by previous consolidation and short-term local highs. On the other hand, the nearest important support level is at 2,590-2,600, marked by previous level of resistance. The next level of support is at 2,530-2,550, marked by the early February local low, along with Monday's daily low of 2,553.80.

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. The uptrend reversed in the middle of March, and then stocks retraced almost all of their February - March rebound. The most likely scenario right now is bearish one, leading us to February low or lower after breaking below medium-term upward trend line. The bullish case is a medium-term double top pattern or breakout higher. Previous week's sell-off made the bearish case much more likely, almost a certainty. Last week's Monday's rally gave bulls another chance, but Tuesday's sell-off took it away. Stocks broke below their short-term consolidation on Monday, but they rebounded yesterday. You should take notice of a breakdown below rising wedge pattern. This over month-long trading range was an upward correction following late January - early February sell-off:

Negative Expectations

Expectations before the opening of today's trading session are very negative, because the index futures contracts trade 1.6-2.1% lower vs. their Tuesday's closing prices. The European stock market indexes have lost 0.7-1.4% so far. Investors will wait for series of economic data announcements: ADP Non-Farm Employment Change number at 8:15 a.m., ISM Non-Manufacturing PMI, Factory Orders at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market will probably retrace yesterday's rebound and continue its short-term downtrend today. If the S&P 500 index fails to remain above the level of support at around 2,555, sellers would likely drive stock prices lower, towards the early February medium-term low of 2,532.69

The S&P 500 futures contract trades within an intraday downtrend, as it retraces its yesterday's move up. The nearest important level of support is at around 2,550-2,555, marked by local low. On the other hand, resistance level is at 2,580-2,600, marked by recent fluctuations. The futures contract is close to Monday's local low, 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 downtrend. The market got close to 6,500 mark yesterday, but it failed to break above that resistance level. Consequently, it reversed its upward course and broke below 6,400 again. It currently trades closer to the level of 6,300, following breakdown below Monday's local low. Is this some final panic selling before upward reversal or a downtrend leading below early February lows? It is hard to say, but bears are still on the run. The Nasdaq futures contract trades below its downward trend line, as the 15-minute chart shows:

Apple, Amazon Still at Support Levels

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record high on March 13, but then it reversed the uptrend. We saw negative technical divergences - the most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI or MACD based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. The market formed a negative candlestick chart pattern called "bearish engulfing". It consists of a smaller white candlestick followed by a black candlestick that "engulfs" the white one. This downward reversal pattern has been confirmed. Consequently the market continued its downtrend, as it broke below the upward trend line more than two weeks ago. Since then it accelerated downwards. On Monday we wrote that the price may bounce off support level at $160-165. And it did. Then it reversed lower again, after bouncing off resistance at $175. It continues bouncing off its last week's Monday's local low:

Now let's take a look at Amazon.com, Inc. (AMZN) daily chart. It remains relatively weaker than the broad stock market, as it gets close to medium-term upward trend line. There were some clear negative technical divergences, along with March 13 bearish engulfing downward reversal pattern. The nearest important support level is at around $1,350, marked by the above-mentioned trend line. On the other hand, resistance level is at $1,500, marked by previous level of support, as we can see on the daily chart:

Dow Jones - Upward Reversal Pattern, but...

The Dow Jones Industrial Average daily chart shows that blue-chip index was relatively weaker than the broad stock market recently, as it continued to trade well below late February local high. The market broke below its early March local low on March 22, and it continued towards the early February local low. It fell slightly below that level on Monday, as it reached new yearly low of 23,344.52, before bouncing off and closing above 23,600. Daily closing price above previous Friday's closing price was a positive signal. Yesterday the blue-chip index formed a positive "Harami" candlestick pattern. But will the market confirm it today, despite negative expectations ahead of opening of the trading session? It may be very difficult:

Concluding, the S&P 500 index will likely open much lower today, as futures contracts trade well below their yesterday's closing prices. The market may broke below the level of 2,600 again, and continue towards the early February low. However, there will be some economic data announcements today, so investors' sentiment may slightly improve later in the day. Otherwise, we will see a further deterioration.

The early March rally failed to continue following monetary policy tightening, trade war fears, negative political news. What was just profit-taking action, quickly became a meaningful downward reversal. Breakdown below over-month-long rising wedge pattern made medium-term bearish case more likely, and after some quick consolidation, the index accelerated lower, towards its early February low. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come.

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
Stock Trading Alerts