Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Intraday outlook: The broad stock market will likely open higher today. The S&P 500 index may extend its consolidation along the last week's local high. For now, it looks like a relatively flat correction within a short-term uptrend.
The U.S. stock market indexes lost 0.7-0.8% on Tuesday, as stocks retraced some of their recent rally. The S&P 500 index fell over 200 points from its record high of 3,027.98 in early August. Then it retraced more than 120 points of that sell-off, before getting back to the low again last week. Both the Dow Jones Industrial Average and the Nasdaq Composite lost 0.7% yesterday.
The nearest important resistance level of the S&P 500 index remains at around 2,940-2,950, marked by last week's local high. On the other hand, the support level is at 2,895-2,900, marked by Monday's daily gap up of 2,893.63-2,913.48. The support level is also at 2,865-2,870.
The broad stock market broke below its two-month-long upward trend line in early August, and then it quickly retraced most of the June-July advance. The S&P 500 index remains below the previous medium-term local highs. For now, it looks like a consolidation following the January-February advance. However, it could also play out as a long-term topping pattern ahead of a more meaningful downward correction:
Closer to Local Highs Again
The index futures contracts trade 0.6-0.8% above their yesterday's closing prices this morning. So expectations before the opening of today's trading session are positive. The European stock market indexes have gained 1.1-1.5% so far. Investors will wait for some economic data releases today: Existing Home Sales at 10:00 a.m., Crude Oil Inventories at 10:30 a.m., FOMC Meeting Minutes at 2:00 p.m.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces some its yesterday's decline. The nearest important resistance level is at 2,925-2,930. On the other hand, the support level is at 2,900-2,910. The futures contract extends its short-term consolidation, as we can see on the 15-minute chart:
Nasdaq 100 Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. It bounced off support level of 7,350-7,400 on Thursday. And the nearest important resistance level remains at 7,750. The Nasdaq futures contract is close to the short-term local high, as the 15-minute chart shows:
Big Cap Tech Stocks Remain at Resistance Levels
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock broke slightly above its last week's local high. It is at the resistance level of $210-215 again:
Now let's take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock remains below the broken upward trend line. The resistance level is still at $140-145. It still looks like a consolidation within a medium-term uptrend:
Dow Jones Going Sideways
The Dow Jones Industrial Average broke below its upward trend line in late July. Then it fell to around 25,500, before bouncing off the 200-day moving average. Last week the blue-chip stocks' gauge bounced off that support level again. We could see more short-term fluctuations following the mentioned late July - early August sell-off:
The S&P 500 index broke below the upward trend line in late July, as investors reacted to the Fed's Rate Decision release, among other factors. We saw technical overbought conditions along with negative technical divergences then. And the market declined following renewed trade war fears. Recently it was rebounding off the support level of around 2,800-2,820. Has the bottom been reached? For now, it looks like a consolidation following the decline.
Concluding, the S&P 500 index will likely open higher today. The market may continue to fluctuate along its last week's local high. If the index breaks above that resistance level, we could see more buying pressure.
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
