Briefly:
Intraday trade: The S&P 500 gained 1.3% on Friday, after opening 0.6% higher. The market will probably open lower today. 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 1.0-1.4% on Friday, 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 more than 50% of the downtrend. It broke slightly above 2,600 mark on Tuesday and it got closer to 2,700 on Friday. The Dow Jones Industrial Average gained 1.4% and the Nasdaq Composite gained 1.0% on Friday.
The nearest important level of resistance of the S&P 500 index is now at 2,675-2,685, marked by the early December local highs. The resistance level is also at 2,700-2,710. On the other hand, the support level is at around 2,645-2,650, marked by Friday's daily gap up of 2,645.06-2,647.58. There is also the 50% retracement of the whole downtrend from the mentioned September's record high at 2,643.7. The next level of support remains at 2,600-2,610.
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 more than 50% of the whole decline off the September high. The index trades at a possible resistance level of its previously broken upward trend line, as we can see on the daily chart:
Negative Expectations, Short-Term Correction?
The index futures contracts trade 0.3-0.4% below their Friday's closing prices. So expectations before the opening of today's trading session are negative. The European stock market indexes have lost 0.5% so far. There will be no new important economic data announcements today. However, investors will wait for more quarterly corporate earnings releases this week. The broad stock market will likely fluctuate following the recent advance. There have been no confirmed negative signals so far. But we can see some clear short-term technical overbought conditions.
The S&P 500 futures contract trades within an intraday consolidation following an overnight decline. The nearest important level of resistance is now at around 2,660, marked by a local high. On the other hand, the support level is at 2,635-2,640, among others. The futures contract trades below its two-day-long downward trend line, as the 15-minute chart shows:
Nasdaq Slightly Above 6,700
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after retracing some of its recent advance. The market gained over 1,000 points from December the 26th local low of around 5,820. On Friday it broke above 6,800 mark before quickly reversing lower. The nearest important level of resistance is at 6,800-6,830. The support level is at 6,650-6,700, among others. The Nasdaq futures contract remains above 6,700 mark, as we can see on the 15-minute chart:
Big Cap Tech Stocks - Uncertainty Following Run-Up
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 at 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. Last week the market broke above its three-month-long downward trend line. But there is a close resistance level at around $1,700-1,750:
Dow Jones Closer to 25,000 Mark
The Dow Jones Industrial Average broke above the level of 24,000 last week, and it continued higher towards 25,000 mark on Friday. The market is back above its October-December local lows. So will it continue higher and reach the record high? For now, it still looks like an upward correction. However, there have been no confirmed negative signals so far. The resistance level is at the mentioned 25,000:
The S&P 500 index extended its short-term uptrend recently, as it broke above the mentioned 50% retracement of the whole downtrend from the record high. Is this a new medium-term uptrend? The broad stock market may retrace more of its December decline, but there will likely be a downward correction at some point. The medium-term picture is more bullish at this moment.
Concluding, the S&P 500 index will likely open lower today and we may see some profit-taking action. There have been no confirmed negative signals so far, but we can see some short-term technical overbought conditions.
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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