Briefly:

Intraday trade: Our Tuesday's intraday outlook was neutral. The S&P 500 index lost 0.7% after opening 0.4% lower. The stock market may retrace some of its yesterday's move down today. We will probably see a short-term consolidation. 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 0.7-0.8% on Tuesday, as investors took profits off the table following recent move up. The S&P 500 index got closer to 2,700 mark again after bounding off resistance level of around 2,750. It currently trades 5.7% below January 26 record high of 2,872.87. Both, Dow Jones Industrial Average and the technology Nasdaq Composite lost 0.8% yesterday.

The nearest important level of resistance of the S&P 500 index is now at around 2,720-2,725, marked by yesterday's daily gap down of 2,718.59-2,725.47, among others. The next resistance level remains at 2,740-2,750, marked by mid-March local high. On the other hand, support level is at around 2,700-2,705, marked by last Thursday's daily gap up of 2,701.27-2,704.54. The support level is also at 2,680-2,685, marked by previous resistance level.

The broad stock market extended its short-term uptrend recently, as the S&P 500 index broke above the level of 2,700 again. Stocks lost some ground yesterday, but it doesn't look like a new downtrend. At least not yet. So, will this run-up continue towards 2,800? 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):

Flat Expectations, Less Volatility?

The index futures contracts trade between 0.0% and +0.1% vs. their yesterday's closing prices right now. So, expectations before the opening of today's trading session are virtually flat. The main European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Housing Starts, Building Permits at 8:30 a.m., Industrial Production, Capacity utilization at 9:15 a.m., Crude Oil Inventories at 10:30 a.m. The broad stock market will probably fluctuate after yesterday's move down. Investors' sentiment worsened on Tuesday, but it still doesn't look like a new downtrend. Just a downward correction. However, if the index continues below 2,700 mark, and below the above-mentioned support level of around 2,680, selling pressure may drag stocks lower.

The S&P 500 futures contract trades within an intraday consolidation following yesterday's move down. For now, it looks like a flat correction within a short-term downtrend. The nearest important level of support is at around 2,700-2,705, marked by local lows. On the other hand, resistance level is now at 2,715-2,720, and the next level of resistance is at around 2,730. The futures contract trades along its short-term downward trend line, as we can see on the 15-minute chart:

Nasdaq Trades Along 6,900

The technology Nasdaq 100 futures contract trades within a similar intraday consolidation following Tuesday's decline. The market bounced off resistance level of 7,000 on Monday, and it currently trades along the level of 6,900. It continued its uptrend recently after rebounding off 6,500 mark more than a week ago. The nearest important support level is at 6,850, marked by local low. On the other hand, resistance level is at 6,900-6,930, among others. The Nasdaq futures contract trades close to 6,900 mark, as the 15-minute chart shows:

Apple and Amazon Back Off Their Recent Highs

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached new record high on Friday, as it slightly extended its short-term uptrend. The price bounced off resistance level of around $190-200 after fluctuating on Monday. Is this a new downtrend or just downward correction. For now, it is a correction. Potential support level is at $180-185, marked by previous level of resistance:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high in the late April, as investors reacted to better-than-expected quarterly earnings release. Then, on the same trading day it sold off below $1,600. Was this a downward reversal or just correction following breakout higher? The recent price action looked pretty bullish, as price got back to the all-time high level. However, the stock retraced some of its recent advance yesterday. We may see some more short-term uncertainty following late April rally:

Dow Jones in a Correction

The Dow Jones Industrial Average broke above its medium-term downward trend line recently. Then it continued higher above a few-week-long downward trend line. The blue-chip index bounced off resistance level of 25,000 on Monday, and then it retraced some of its recent advance yesterday. Is this a new downtrend? Probably not. For now, it looks like a downward correction:

The broad stock market reached the highest since March 21 on Monday, following S&P 500 index breakout above 2,700 mark, but it retraced some of its recent advance yesterday. Is this a new downtrend or just downward correction? For now, it looks like a correction within an uptrend. The market extends its medium-term fluctuations. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come.

Concluding, the S&P 500 index will probably fluctuate after its yesterday's move down. For now, it looks like Tuesday's sell-off was just profit-taking action following last week's advance. However, if the index continues below the level of 2,700, selling pressure may intensify.

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