The U.S. stock market indexes lost 0.5-0.9% on Tuesday, as investors' sentiment worsened once again. The S&P 500 index continues to trade above the support level of 2,700. It is currently 5.5% below the January's 26th record high of 2,872.87. The Dow Jones Industrial Average lost 0.5% and the technology Nasdaq Composite lost 0.9% on Tuesday.
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 last week's Monday's daily gap down of 2,742.94-2,752.68 and some recent local highs. 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 more than a week ago, 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:
Positive Expectations, More Short-term Fluctuations
Expectations before the opening of today's trading session are slightly positive, because the index futures contracts trade 0.3-0.4% higher vs. their yesterday's closing prices. The main European stock market indexes have gained 0.6-1.2% so far. Investors will wait for series of economic data announcements today: ADP Non-Farm Employment Change number at 8:15 a.m., Initial Claims at 8:30 a.m., ISM Non-Manufacturing PMI at 10:00 a.m., Crude Oil Inventories at 11:00 a.m., the FOMC Meeting Minutes release at 2:00 p.m. The broad stock market will probably extend its short-term consolidation. The S&P 500 index still trades above the support level of around 2,700. Yet, it also remains below the resistance level of 2,740-2,750. Is this some bottoming pattern or just a relatively flat correction within a downtrend? There have been no confirmed positive signals so far.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's decline. The nearest important level of support remains at around 2,710-2,720, marked by short-term consolidation. On the other hand, resistance level is at 2,730-2,740, among others. The futures contract keeps going sideways, as we can see on the 15-minute chart:
Nasdaq Also Bounces
The technology Nasdaq 100 futures contract follows a similar path, as it bounces off its local lows. The nearest important level of resistance is at around 7,100-7,150. On the other hand, support level remains at 7,000. The Nasdaq futures contract extends the short-term consolidation, as the 15-minute chart shows:
Apple, Amazon - Still no Clear Direction
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It traded within a short-term downtrend since the beginning of June. The decline accelerated a week ago, as the price got closer to a potential support level of $180. Then it rebounded and broke slightly above its downward trend line. Since then, it fluctuates. There have been no confirmed positive signals so far:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It reached the new record high two weeks ago, as it was relatively much stronger than the broad stock market. Then it reversed its short-term uptrend and got closer to the support level of $1,650 again. Since then it fluctuates along the level of $1,700:
Dow Jones - More Short-term Uncertainty
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. The blue-chip index kept bouncing off a potential support level of around 24,000-24,250 last week. It continues to trade along its 200-day moving average:
The S&P 500 index extended its short-term consolidation on Tuesday despite positive expectations ahead of the opening of the trading session. It bounced off the resistance level of around 2,740-2,750 and got closer to 2,700 mark again. Is this some bottoming pattern or just a relatively flat correction before another leg lower?
Concluding, the broad stock market will likely open higher today, as investors' sentiment improves following another bounce off support level. The broad stock market is extending its over week-long consolidation this morning. The market awaits series of economic data releases.
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Paul Rejczak
Stock Trading Strategist
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