Briefly:

Intraday trade: The S&P 500 index lost 0.7% on Thursday, after opening 0.1% lower. The stock market will likely open higher today. We may see another attempt at breaking above three-week-long consolidation. 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 U.S. stock market indexes lost between 0.3% and 1.0% on Thursday, as they retraced most of their Wednesday's rise. The S&P 500 index continued to trade above the level of 2,700.  It is currently 5.8% below January's 26th record high of 2,872.87. The Dow Jones Industrial Average lost 1.0%, and the technology Nasdaq Composite lost 0.3%, as it was relatively stronger than the broad stock market yesterday.

The nearest important level of resistance of the S&P 500 index is now at around 2,725-2,730, marked by recent local highs. The next level of resistance remains at 2,740-2,750, marked by previous local highs along with mid-March local high. On the other hand, support level is at around 2,700-2,705, marked by short-term local lows. The next level of support is at 2,675, marked by Tuesday's local low.

The broad stock market extended its short-term uptrend in the beginning of May, as the S&P 500 index broke above the level of 2,700. Then the market traded within a consolidation. Stocks broke lower on Tuesday, as the index fell below 2,700 mark, but they quickly retraced their decline on Wednesday. There are still two possible medium-term scenarios - bearish that will lead us below February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or 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):

Within a Consolidation Again

Expectations before the opening of today's trading session are positive, because the index futures contracts trade between +0.3% and +0.5% vs. their Thursday's closing prices. The European stock market indexes have gained 0.7-1.2% so far. Investors will wait for some important economic data announcements this morning: Nonfarm Payrolls, Unemployment Rate at 8:30 a.m., ISM Manufacturing PMI number, Construction Spending at 10:00 a.m. The broad stock market will likely extend its short-term fluctuations along the resistance level today. Will it break higher at some point? It's hard to say. However, Tuesday's bounce from support level is a positive signal.

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 resistance is at around 2,725, marked by local highs. The next resistance level is at 2,735-2,740. On the other hand, level of support is at 2,700, marked by short-term local low. The futures contract trades slightly below its two-week-long downward trend line, as we can see on the 15-minute chart:

Nasdaq Trades Along 7,000 Mark

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. Tech stocks remain relatively stronger than the broad stock market, as the index continues to trade along 7,000 mark. Potential level of resistance is at around 7,020, marked by local high. On the other hand, support level is at 6,950, marked by recent resistance level, among others. The Nasdaq futures contract is at the level of 7,000, as the 15-minute chart shows:

Apple Going Sideways, Amazon Nears Record High

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached new record high three weeks ago, as it extended its short-term uptrend following quarterly earnings release. The price bounced off resistance level of around $190-200 and since then it trades within a consolidation. It remained within a consolidation on Tuesday, despite broad stock market weakness. Is this a topping pattern? There have been no confirmed negative signals so far:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high in late April and on the same trading day it sold off. Since then, the stock traded within a consolidation. However, recent days' price action looks pretty bullish, as the stock gets closer to record high again:

Blue Chips Relatively Weaker

The Dow Jones Industrial Average broke above its medium-term downward trend line in the first half of May. Then it continued higher above a few-week-long downward trend line. However, it kept bouncing off resistance level of 25,000. On Tuesday over a week ago we saw negative bearish engulfing candlestick pattern. The market broke below its recent consolidation recently, as it confirmed its short-term downward reversal. Potential level of support remains at around 24,000:

The broad stock market broke below its over two-week-long consolidation on Tuesday, but it quickly came back to its three-week-long consolidation on Wednesday. So, it still a sideways movement. Topping pattern or just some flat correction before another leg higher following the early May advance? For now, it looks like a flat correction. If the S&P 500 index breaks above its resistance level of around 2,730-2,750, we could see some buying pressure. However, just like we wrote in our several Stocks Trading Alerts, the early February sell-off sets a negative tone for weeks or months to come.

Concluding, the S&P 500 index will likely open higher today and it will probably retrace some of yesterday's decline. The technology stocks sector remains relatively stronger than the broad stock market, but will it drive the whole market higher? There have been no confirmed short-term negative signals so far. However, there is still an important level of resistance at 2,730-2,750.

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