Briefly:

Intraday trade: Our Tuesday's intraday outlook was neutral. The S&P 500 index lost 1.7% after opening 0.3% higher. Expectations before the opening of today's trading session are slightly negative, so stocks will probably extend their yesterday's decline in the morning. However, the S&P 500 is close to support level of 2,600 again. 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 1.4% and 2.9% on Tuesday, retracing most of their Monday's rally, as investors' sentiment worsened again following weaker-than-expected Consumer Confidence number release, among others. The S&P 500 index bounced off resistance level at around 2,650-2,670, and it trades closer to 2,600 mark again. It is currently 9.1% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 1.4%, and the technology Nasdaq Composite lost 2.9% on Tuesday, after gaining 3.3% on Monday.

The nearest important level of resistance of the S&P 500 index remains at 2,650-2,670, marked by previous consolidation and short-term local highs. The next resistance level is at 2,690-2,710, marked by March 22 daily gap down of 2,695.68-2,709.79. On the other hand, the nearest important support level is at 2,585-2,600, marked by Friday's and Monday's 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. Since then it was fluctuating, and now it is trading close to its upward trend line again. There are two possible future scenarios. The bearish case leading us to February low or lower after breaking below medium-term upward trend line, and the bullish one with medium-term double top pattern or breakout higher. Last week's sell-off made the bearish case much more likely, almost a certainty. Monday's rally gave bulls another chance, but yesterday's sell-off took it away. 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:

Slightly Negative Expectations, but Close to Support Level

Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.2-0.3% lower vs. their Tuesday's closing prices. The European stock market indexes have lost 0.3-0.9% so far. Investors will wait for some economic data announcements today: Final GDP number, Trade Balance, Wholesale Inventories at 8:30 a.m., Pending Home Sales at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market will probably extend its yesterday's move down at the opening of today's trading session. Will the index continue below its recent lows along 2,585-2,600? It's hard to say. If it breaks lower, it could continue towards February 9 low of 2,532.69.

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 2,590-2,600, marked by local lows. On the other hand, level of resistance is at 2,620, and the next resistance level is at 2,650, among others. The futures contract continues to trade along its recent local lows, as we can see on the 15-minute chart:

Nasdaq Sees Wild Volatility

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It accelerated its downtrend on Friday, as it moved towards 6,500 mark. Then it retraced most of its last week's decline on Monday and Tuesday morning. It reached as high as around 6,850, before quickly going down again. The market is at support level of 6,480-6,500 this morning, as the 15-minute chart shows:

Apple, Facebook Reversing Lower Again

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The market reached new record high two weeks 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. Consequently the market continued its downtrend, as it broke below the upward trend line a week ago. Since then it accelerated downwards. On Monday we wrote that the price may bounce off support level at $160-165. And it did. Then it reversed lower again, after bouncing off resistance at $175. For now, this three-day-long action looks like an upward correction before another leg lower:

Now let's take a look at Facebook, Inc. (FB) daily chart. It broke below its medium-term consolidation and potential downward reversal head-and-shoulders pattern last week following Cambridge Analytica data breach news. The price accelerated towards $150 on Monday, before bouncing off that support level. On the other hand, previous support level of $165-170 acts as a resistance level. The market fell the lowest since July of 2017 on Monday. Monday's bounce was a short-term positive signal, but the market sold off on Tuesday again. The price of $150 may still act as a temporary bottom:

Dow Jones Hovers Around 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 on Thursday, and it continued below the level of 24,000 on Friday. 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. The index got close to its February 9 low and it acted as a short-term support level on Friday. Was this an upward reversal or just dead-cat-bounce correction before another leg lower? Well, the market is still below its medium-term downward trend line which is currently at around 25,000:

Concluding, the S&P 500 index will likely open slightly lower today, as futures contracts extend their yesterday's move down. However, the market may remain above its support level of 2,585-2,600. Bulls are walking on thin ice here, as some more downward pressure may lead stocks to their early February low.

The early March rally failed to continue following monetary policy tightening, trade war fears, negative political news. What was just profit-taking action, quickly became a meaningful downward reversal. Last week's Monday's sell-off and breakdown below over-month-long rising wedge pattern made medium-term bearish case more likely, and after some quick consolidation, the index accelerated lower on Thursday and Friday. 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.

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