Briefly:
Intraday trade: The S&P 500 gained 0.8% on Thursday, after opening 0.3% lower. The market will probably open higher today. Then we may see a short-term consolidation following the recent rally.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Our short-term outlook is neutral, and our medium-term outlook is neutral:
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral
The U.S. stock market indexes gained 0.7-0.8% on Thursday, extending their recent uptrend, as investors' sentiment remained bullish ahead of the quarterly earnings releases, among other factors. The S&P 500 index continued its rebound off the December the 26th medium-term low of 2,346.58. The index traded 20.2% below September the 21st record high of 2,940.91 on that day. Then the market rallied and retraced exactly 50% of the downtrend. It broke slightly above 2,600 mark on Tuesday and it got closer to 2,650 yesterday. Both the Dow Jones Industrial Average and the Nasdaq Composite gained 0.7% on Thursday.
The nearest important level of resistance of the S&P 500 index is at around 2,645, marked by the 50% retracement of the whole downtrend from the mentioned September's record high at 2,643.7. The next resistance level is at 2,675-2,685, marked by the early December local highs. On the other hand, the level of support is at 2,580-2,600, marked by the recent resistance level. The support level is also at 2,550-2,570.
The broad stock market broke below its two-month-long trading range in the mid-December, as the S&P 500 index fell below the level of 2,600. Then the market accelerated lower and it broke below the level of 2,400. The downward correction reached 20.2% from the September all-time high, surpassing January-February correction of around 12%. Since then, the market retraced 50% of the whole decline off the September high. The index trades at the resistance level of its previous trading range, as we can see on the daily chart:
Positive Expectations, but Profit-Taking Action Possible
The index futures contracts trade 0.5-0.7% above their yesterday's closing prices. So expectations before the opening of today's trading session are positive. The European stock market indexes have gained 1.4-1.6% so far. Investors will wait for some economic data announcements this morning: Industrial Production, Capacity Utilization Rate at 9:15 a.m., Preliminary Michigan Sentiment number at 10:00 a.m. Investors will also wait for more quarterly corporate earnings releases. The broad stock market will likely fluctuate following the recent advance. There have been no confirmed negative signals so far. However, we can see some short-term technical overbought conditions.
The S&P 500 futures contract trades within an intraday uptrend, as it extends its yesterday's advance. The nearest important level of support is at around 2,630. The support level is also at 2,595-2,600, marked by the local lows. On the other hand, the resistance level is at 2,645-2,650. The futures contract continues its short-term uptrend this morning, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. It gained more than 900 points from December the 26th local low of around 5,820. Yesterday it got close to 6,750. The nearest important resistance level is at around 6,800-6,850, marked by some mid-December local highs. The Nasdaq futures contract continues to trade above its short-term upward trend line, as we can see on the 15-minute chart:
Apple Still Relatively Weaker
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock sold off in the early January, as it reached the new medium-term low of $142. We saw clear short-term oversold conditions and then the stock retraced some of its recent decline. It broke above the month-long downward trend line, but it still remains slightly below the resistance level of $155-160:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The stock accelerated its downtrend in the late December and it reached the new medium-term low of $1,307. Since then it was consequently advancing. On Tuesday a week ago the market reached its three-month-long downward trend line. Recently we wrote that "we may see an attempt at breaking higher" And it seems that the market broke higher, but there is a resistance level at around $1,700-1,750:
Dow Jones Above 24,000
The Dow Jones Industrial Average broke below its two-month-long consolidation in the mid-December and then it accelerated much lower. The blue-chip stocks' gauge fell below the level of 22,000. It slightly extended the downtrend in the late December, before sharply reversing higher and getting back to 24,000 mark. The market is still at its October - December trading range after retracing the post-breakdown sell-off:
The S&P 500 index extended its downtrend in the late December, before reversing higher. The broad stock market was more than 20% below its September's record high on December the 26th. Is this a new long-term bear market or just medium-term downward correction? It still looks like a correction. The market retraced some of its recent decline, however, it continues to trade at the relatively important resistance levels.
Concluding, the S&P 500 index will likely open higher today but we may see some profit-taking action later in the day. The market extended its short-term uptrend yesterday, as it reached the 50% retracement of the whole October-December decline.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Thank you.
Paul Rejczak
Stock Trading Strategist
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