Briefly:

Intraday trade: Our Friday's intraday outlook was neutral. The S&P 500 index lost 0.2% after opening 0.1% lower. The stock market will likely open much lower today, but we may see some short-term bottoming pattern along the support level of 2,700. 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 were mixed between -0.2% and +0.1% on Friday, as investors' sentiment remained neutral following two-week-long fluctuations. The S&P 500 index remained above 2,700 mark, and it was 5.3% below January's 26th record high of 2,872.87 on Friday. The Dow Jones Industrial Average lost 0.2%, and the technology Nasdaq Composite gained 0.1%.

The nearest important level of resistance of the S&P 500 index remains at around 2,740-2,750, marked by recent local highs along with mid-March local high. On the other hand, support level is at around 2,700-2,710, marked by previous daily gap-up of 2,701.27-2,704.54 and recent daily lows. The support level is also at 2,680-2,685, marked by some late April - early May local highs.

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 stocks lost some ground, but it didn't look like a new downtrend. Since then, the market traded within consolidation. Stocks are expected to open lower today, but the index may remain close to support level of 2,700. 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):

Negative Expectations, New Downtrend?

Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.9-1.1% lower. The European stock market indexes have lost 1.2-1.4% so far. Investors will wait for the Conference Boards Consumer Confidence number release at 10:00 a.m. The broad stock market will likely fluctuate after opening lower. If the S&P 500 index breaks below 2,680-2,700, we could see more selling pressure.

The S&P 500 futures contract trades within an intraday downtrend, as it extends its overnight decline. It broke below 2,700 mark, and it currently trades along that support level. The short-term support level is also at around 2,690, marked by local low. The next support level is at 2,680-2,685, among others. On the other hand, resistance level is now at 2,705-2,710, marked by recent local lows. The futures contract trades below recent local lows, as we can see on the 15-minute chart:

Nasdaq Bounced Off 7,000 Again

The technology Nasdaq 100 futures contract follows a similar path, as it breaks lower this morning. The market bounced off resistance level of around 7,000 again, and it is currently trading closer to 6,900 mark following bouncing off support level at around 6,890-6,900. The nearest important resistance level is at around 6,940-6,960. Is this a new downtrend? It's hard to say. Tech stocks trade relatively close to their record highs. The Nasdaq futures contract remains above its last week's local lows, as the 15-minute chart shows:

Apple, Amazon Still Bullish, but...

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached new record high more than two weeks ago, as it extended its short-term uptrend. The price bounced off resistance level of around $190-200 and since then it traded within a consolidation. 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 of $1,638.10 in late April and on the same trading day it sold off below $1,600. Was this a downward reversal or just a correction following breakout higher? Since then, the stock traded within a consolidation. Recent price action looks pretty bullish, as price remains above $1,600:

Dow Jones to Reverse Lower?

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, the blue-chip index keeps bouncing off resistance level of 25,000. On Tuesday we saw negative bearish engulfing candlestick pattern. Will the index continue downwards following today's lower opening of the trading session? Potential level of support is at around 24,500:

The broad stock market extended its short-term consolidation last week, as investors' sentiment remained neutral following the early May rally. Was this some topping pattern before a downward reversal? Stocks will likely open lower today in a reaction to new euro zone crisis fears. However, there have been no confirmed negative signals so far. 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 probably break slightly below its short-term consolidation today. However, we may see some fluctuations along potential support level of around 2,700. If the index break lower, we could see some more selling pressure. For now, it looks like a correction following the early May rise.

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