Briefly:
Intraday trade: The S&P 500 index lost 1.2% after opening 0.7% lower on Thursday. The broad stock market will likely open higher today. We may see some more short-term volatility following the early May sell-off.
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 lost 1.1-1.6% on Thursday, breaking below their recent trading range, as investors reacted to the latest trade war developments. Last week the S&P 500 index fell the lowest since late March, and it got very close to the 2,800 mark (the local low at 2,801.43). Then it rebounded to the resistance level of around 2,890-2,900. But yesterday it came back to the 2,800 again (daily low at 2,805.49). It currently trades 4.5% below its May the 1st record high of 2,954.13. The Dow Jones Industrial Average lost 1.1% and the Nasdaq Composite lost 1.6% on Thursday.
The nearest important resistance level of the S&P 500 index is now at 2,835-2,850, marked by yesterday's daily gap down of 2,836.70-2,851.11. The resistance level is also at 2,865-2,870, marked by the recent local highs. On the other hand, the support level is at 2,800-2,820, marked by the recent local lows.
The broad stock market retraced all of its December sell-off and it broke above the last year's in the early May. But then the index broke below the short-term consolidation and it retraced all of the April's advance. The market also broke below its two-month-long upward trend line. The index continues to bounce off the 2,800 mark recently, as we can see on the daily chart:
Upward Reversal or Just Correction?
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.4-0.5% above their Thursday's closing prices. The European stock market indexes have gained 0.7-0.9% so far. Investors will wait for the Durable Goods Orders number release at 8:30 a.m. The broad stock market will likely retrace some of its yesterday's sell-off. The market may extend the consolidation following the early May decline.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's sell-off. The nearest important resistance level is now at around 2,850. On the other hand, the support level is at 2,805-2,815. The futures contract remains below its over week-long downward trend line, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades higher this morning. The market fell almost 600 points from its late April record high of around 7,880, before bouncing off the 7,300 mark more than a week ago. It retraced more than 300 points from that local low. But then it reversed its upward course again and yesterday it fell below the previous low. The resistance level is now at around 7,400, marked by the recent local low. On the other hand, the support level is at 7,250-7,300. The Nasdaq futures contract is still below the Monday's low, as we can see on the 15-mintue chart:
Apple at New Low, Microsoft Going Sideways
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock extended its rally on May the 1st following the quarterly earnings release. Then the price reversed its upward course and broke below the medium-term upward trend line. Since then it trades within a downtrend. The nearest important support level is now at $175-180:
Now let's take a look at the daily chart of Microsoft Corp. (MSFT). The stock accelerated its uptrend in the late April, as it reached the new record high of $131.37. Investors reacted to a better-than-expected quarterly earnings release. Since then, the market is trading within a consolidation. It remains relatively stronger than the broad stock market:
Dow Jones at 200-day Moving Average Again
The Dow Jones Industrial Average has been relatively weaker than the broad stock market since February. The resistance level remained at around 26,800-27,000, marked by the last year's topping pattern and the record high of 26,951.8. Recently the blue-chip stocks' gauge followed the broad stock market, as it accelerated the downtrend. The market is at its important 200-day moving average again:
The S&P 500 index has reached the new record high on May the 1st. The broad stock market extended its medium-term uptrend, as investors' sentiment remained very bullish following economic data, quarterly corporate earnings releases. But then it quickly retraced its April's advance following the renewed trade war fears. More than a week ago it sold off to the 2,800 mark, before bouncing off that support level. But yesterday it got back down again. For now, it looks like a consolidation following the early May decline.
Concluding, the S&P 500 index will likely open higher today. The market may retrace some of its yesterday's decline, and we may see some more volatile sideways trading action.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Thank you.
Paul Rejczak
Stock Trading Strategist
Sunshine Profits - Effective Investments through Diligence and Care
