Briefly:

Intraday trade: Our Monday's intraday outlook was neutral. The S&P 500 index lost 1.4% after opening 0.4% lower. The market broke below its recent trading range, and it fell slightly below the level of 2,700, before rebounding and closing above that support level. Stocks will probably fluctuate today. Therefore, 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 main U.S. stock market indexes lost between 1.4% and 1.8% on Monday, as investors reacted to global stock markets move down, Facebook data breach news. The S&P 500 index broke below its last week's short-term trading range, and it continued below the level of 2,700. It lost 1.4% after rebounding off that support level (daily low at 2,694.59). The Dow Jones Industrial Average lost 1.4%, and the technology Nasdaq Composite was relatively weaker, as it lost 1.8%.

The nearest important level of resistance of the S&P 500 index is now at 2,740-2,750, marked by yesterday's daily gap down of 2,741.38-2,749.97. The next resistance level remains at around 2,775-2,780, marked by last Wednesday's daily high. On the other hand, support level is at 2,695-2,700, marked by yesterday's daily low, among others. Potential support level is also at 2,650-2,670, marked by previous local lows.

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 is still 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. Yesterday's sell-off made the bearish case more likely again. You should take notice of yesterday's breakdown below potential rising wedge pattern. This over month-long trading range looks like an upward correction following late January - early February sell-off:

Rebound Today?

Expectations before the opening of today's trading session are virtually flat, because the index futures contracts are trading between -0.1% and +0.1% vs. their yesterday's closing prices. The European stock market indexes have gained 0.3% so far. There will be no new important economic data announcements today, but investors will wait for tomorrow's FOMC Rate Decision release. Will yesterday's sell-off continue today? The S&P 500 index may have found short-term support level at around 2,700. It will probably remain above that level for some time. Will it go higher from here? The upside seems also quite limited.

The S&P 500 futures contract trades within an intraday consolidation following yesterday's intraday rebound. The nearest important level of support is at around 2,695-2,700, marked by local low. On the other hand, resistance level is at 2,725-2,730, and the next level of resistance is at 2,740-2,745, marked by recent fluctuations. The futures contract trades at its short-term downward trend line, as we can see on the 15-minute chart:

Nasdaq Futures at 6,900 Mark

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after rebounding off support level at around 6,820-6,850. The market 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. Is this just downward correction following record-breaking rally? For now, it looks like a correction and not some new medium-term downtrend. The nearest important short-term resistance level is at around 6,920, marked by local highs, and the next level of resistance is at 6,950-6,970. The Nasdaq futures contract broke slightly above its short-term downward trend line, as the 15-minute chart shows:

Facebook Led the Market Lower, Apple Fell Below Trend Line

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record high a week ago, but then it reversed its uptrend. We saw 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. The market formed a negative candlestick chart pattern called "bearish engulfing". It consists of a smaller white candlestick followed by a black candlestick that "engulfs" the white one. This downward reversal pattern has been confirmed by last week's Wednesday's move down. Consequently the market continued its downtrend, as it broke below the upward trend line yesterday. Will it continue lower today? Probably not. It may fluctuate within a short-term consolidation along support level of $170-175:

Now let's take a look at Facebook, Inc. (FB) daily chart. It fell 6.8% on Monday, following data breach news release. The market opened with a relatively big gap down. It will act as a resistance level now. Overall, the stock remains relatively weaker than technology stocks sector. It extends its over four-month-long medium-term consolidation. If it is a long-term reversal head and shoulders pattern, then Facebook bulls may be in trouble:

Dow Jones Also Lower

The Dow Jones Industrial Average daily chart shows that blue-chip index was relatively weaker than the broad stock market and much weaker than record-breaking technology stocks recently, as it continued to trade well below late February local high. The market broke below 25,000 mark, as it retraced more of its recent rebound. Possible support level is at around 24,250, marked by previous local low. If the index breaks lower, it could continue towards February 9 panic low. In late February, 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 acted as a resistance level, as we can see on the daily chart:

Concluding, the S&P 500 index will probably fluctuate or retrace some of its yesterday's decline today. There have been no confirmed positive signals so far. So, we wouldn't buy yet. However, if the index continues lower we would think about buying the dip at around the support level of 2,700 again.

Last week's rally failed to continue following negative political news releases. Was this just quick profit-taking action or more meaningful downward reversal? It's hard to say right now, but yesterday's sell-off made medium-term bullish case less likely. There is also a negative over-month-long rising wedge pattern. If stocks continue lower from here, then they will probably reach or exceed February panic low.

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
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