Briefly:

Intraday trade: Our Thursday's intraday outlook was neutral. The S&P 500 index lost 2.5% after opening 0.8% lower. Expectations before the opening of today's trading session are negative again, but we may see some temporary bottom, if the index gets closer to 2,600 mark and its long-term upward trend line. 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 U.S. stock market indexes lost between 2.4% and 2.9% on Thursday, as investors reacted to Wednesday's interest rate hike, Thursday's trade tariffs releases. The S&P 500 index broke below its early march local low, and it currently trades 8.0% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 2.9%, and the technology Nasdaq Composite lost 2.4%.

The nearest important level of resistance of the S&P 500 index is now at around 2,650-2,670, marked by previous support level. The next resistance level is at 2,695-2,710, marked by yesterday's daily gap down of 2,695.68-2,709.79. On the other hand, potential support level is at 2,580-2,600, marked by long-term upward trend line, among others. There is also a support level at around 2,530-2,540, marked by February 9 low of 2,532.69.

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. The market was in the middle of two possible future scenarios recently. 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. Monday's sell-off and yesterday's breakdown made the bearish case much more likely again. You should take notice of a breakdown below potential rising wedge pattern. This over month-long trading range looks like an upward correction following late January - early February sell-off:

Stocks Set to Open Lower Again

Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.5-0.8% lower vs. their Thursday's closing prices. The European stock market indexes have lost 0.6-1.6% so far. Investors will wait for some economic data releases today: Durable Goods Orders at 8:30 a.m., New Home Sales at 10:00 a.m. Will the expectations reverse before the open? The overall sentiment remains bearish, but we could see some short-term bounce today. The index broke below the support level of 2,650-2,670, so bears are still on the run.

The S&P 500 futures contract trades within an intraday consolidation following yesterday's sell-off. The nearest important level of support is at around 2,615, marked by local low. Potential level of support is also at around 2,600. On the other hand, resistance level is at 2,650, among others. The futures contract accelerated its downtrend yesterday, as the 15-minute chart shows:

Nasdaq Also Lower

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It accelerated its short-term downtrend yesterday. 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. Its recent price action is very bearish, but will it continue lower? The nearest important resistance level is at around 6,680-6,700, marked by previous support level. The next resistance level is at 6,750-6,800, among others. On the other hand, level of support is now at 6,580-6,600, marked by local low. The Nasdaq futures contract remains below its downward trend line, as we can see on the 15-minute chart:

Big-Cap Tech Stocks Selling Off

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record more than a week ago, but then it reversed the uptrend. We saw negative 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 on Monday. The price is now within a potential support level of the previous daily gap up. We may see some short-term bounce here:

Now let's take a look at Facebook, Inc. (FB) daily chart. It fell almost 10% on Monday and Tuesday, as it broke below its medium-term consolidation and potential downward reversal head-and-shoulders pattern. Monday's daily gap down acts a resistance level now. The market is at the lowest since September of 2017. There have been no confirmed positive signals so far:

Dow Jones Breaks Below 24,000

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 its early March local low yesterday, and it continued below the level of 24,000. In late February, we saw 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. Since then, it acted as a resistance level. Will the index get back to its February 9 low? Yesterday's sell-off made this bearish scenario much more likely:

Concluding, the S&P 500 index will probably extend its yesterday's sell-off slightly, but we may see some short-term bounce or at least a consolidation along the early March low of around 2,650. The medium-term bearish case seems much more likely now.

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 looks like a downward reversal. Monday's sell-off and yesterday's continuation lower made medium-term bearish case more 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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