Briefly:

Intraday trade: Our Monday's intraday outlook was neutral. It proved accurate, because the S&P 500 index opened 0.1% higher and closed 0.1% lower. Stocks will probably extend their short-term fluctuations today. Therefore, we prefer to be out of the market again, 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 were mixed between -0.6% and +0.4% on Monday, as investors hesitated following Friday's rally and technology stocks' breakout to new record high. The S&P 500 index lost 0.1% after bouncing off 2,800 mark. It currently trades 3.1% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 0.6% and the technology Nasdaq Composite gained 0.4% yesterday. The latter reached new record high slightly above the level of 7,600.

The nearest important level of resistance of the S&P 500 index remains at 2,790-2,800, marked by short-term local high. The next possible level of resistance is at 2,830-2,840, marked by some late January local highs. On the other hand, support level is at 2,740-2,750, marked by Friday's daily gap up of 2,740.45-2,751.54. The next level of support remains at 2,700-2,720, among others.

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. Friday's trading session made the bullish case much more likely:

Short-term Uncertainty

The index futures contracts trade 0.1-0.2% higher vs. their yesterday's closing prices this morning, so expectations before the opening of today's trading session are slightly positive. The European stock market indexes have been mixed so far. Investors will wait for the Consumer Price Index release at 8:30 a.m. Will Friday's rally continue? If the index breaks above 2,800, it could accelerate the uptrend and extend it towards late January record high. However, we can see a potential negative rising wedge pattern on the above S&P 500's daily chart. It still may be just an upward correction following January - February sell-off.

The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's move down. The market remains close to 2,800 mark. The nearest important level of resistance is at around 2,800-2,805. On the other hand, support level is at 2,785-2,790, marked by short-term local low. The futures contract extends its short-term consolidation today morning, as we can see on the 15-minute chart:

Nasdaq Close to New All-time High

The technology Nasdaq 100 futures contract remains relatively stronger than the broad stock market, as it trades along new record high following Friday's breakout and yesterday's advance. Friday's breakout above 7,100 mark. It gained more than 1,000 points off its February 9 bottom, as it remarkably retraced all of its late January - early February sell-off in one month. Topping euphoria run? Or just another leg higher within multi-year bull market? We will wait and see if this breakout holds - if the market stays above its previous local high of 7,050. The nearest important level of support is at around 7,100-7,140, marked by Friday's move up and yesterday's local low. The next level of support is at 7,000-7,050. On the other hand, potential resistance level is at 7,200. The Nasdaq futures contract trades closer to its short-term upward trend line, as the 15-minute chart shows:

Apple and Amazon at Record Highs, Two Biggest Market Caps

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) again. 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 yesterday, as it broke above $180. We see some negative medium-term 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. However, there have been no confirmed negative signals so far:

Amazon.com, Inc. stock (AMZN) continued its upward march yesterday, as it reached new record high above the price of $1,600. 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. There have been no confirmed negative signals so far. There are still some negative technical divergences along with overbought conditions, but the stock remains remarkably stronger than the broad stock market:

...and Dow Jones Nowhere Near Record High

The Dow Jones Industrial Average daily chart shows that blue-chip index broke above its short-term consolidation on Friday, and it retraced some of its late February - early March move down. However, it is still relatively weaker than the broad stock market and much weaker than technology stocks. Will it break above the late February local high of 25,800? There was a negative candlestick pattern called Dark Cloud Cover, 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. It act as a resistance level right now:

Concluding, the S&P 500 index was virtually flat on Monday, as investors took some short-term profits off the table following Friday's rally. The broad stock market gauge remains close to its late February local high of 2,789.15, and it trades just below 2,800 mark. The index futures point to slightly higher opening of the trading session today, so the market may take another attempt at breaking above the level of 2,800. Technology stocks drive the whole stock market higher, but we can see short-term overbought conditions along with negative technical divergences. It seems that the overall market risk is higher than in the late February when S&P 500 was trading at the same level.

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 quite 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
Stock Trading Alerts