Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Intraday outlook: The broad stock market will likely open lower today. It may retrace some of the Thursday's rebound. We may see more short-term fluctuations following the sell-off. And there may be more volatility in the near future.
The U.S. stock market indexes gained 1.4-2.2% on Thursday, retracing more of their recent declines, as investors' sentiment improved following Wednesday's rebound off the support level. The S&P 500 index fell over 200 points from its previous Friday's record high of 3,027.98 on Monday. Then it retraced almost 120 points of that sell-off. The Dow Jones Industrial Average gained 1.4% and the Nasdaq Composite gained 2.2% on Thursday.
The nearest important resistance level of the S&P 500 index is now at around 2,945-2,950, marked by last week's Thursday's daily low along with last Friday's daily high. The resistance level is also at 2,980-3,000. On the other hand, the support level is at 2,890-2,900, marked by yesterday's daily gap up of 2,892.17-2,894.47.
The broad stock market broke below its two-month-long upward trend line last week, and then it quickly retraced most of the June-July advance. The S&P 500 index remains below the previous medium-term local highs again. For now, it looks like a consolidation following the January-February advance. However, it could also play out as a long-term topping pattern ahead of a more meaningful downward correction:
Negative Expectations, Rebound's Over?
The index futures contracts trade 0.5-0.8% lower vs. their Thursday's closing prices. So expectations before the opening of today's trading session are negative. The European stock market indexes have lost 0.1-1.0% so far. Investors will wait for the Producer Price Index release at 8:30 a.m.
The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its yesterday's advance. The nearest important resistance level is at 2,925-2,930, marked by the short-term local highs. On the other hand, the support level is at 2,900-2,910. The futures contract remains above the 2,900 mark this morning, as we can see on the 15-minute chart:
Nasdaq 100 Closer to 7,700
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday downtrend. It retraces some of yesterday's advance. The nearest important resistance level is now at 7,700-7,750. The Nasdaq futures contract trades along the 7,700 mark, as the 15-minute chart shows:
Apple, Microsoft Retracing the Declines
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock continued to trade at the resistance level of $210-215 recently. It broke above the early May local high following last Tuesday's quarterly earnings release. However, the market reversed downwards off its new medium-term high and on Friday it broke below the upward trend line. Yesterday it got back above $200 price, as it retraced some of the sell-off:
Now let's take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock reached the new record high of $141.68 recently following quarterly earnings release. But on last week's Wednesday it retraced most of the advance and it broke below the two-month-long upward trend line. On Monday it accelerated lower. However, yesterday the price retraced some more of the decline and it got back to the broken trend line:
Dow Jones - New Uptrend or Just Upward Correction?
The Dow Jones Industrial Average broke below its upward trend line on Wednesday. So the recent consolidation was a topping pattern. Then the market broke below the previous medium-term high and on Monday it came back below the 26,000 mark. There we saw short-term oversold conditions. And the index bounced off its 200-day moving average:
The S&P 500 index broke below the upward trend line last week, as investors reacted to the Fed's Rate Decision release. We saw technical overbought conditions along with negative technical divergences recently. And the market turned lower. Then it accelerated the downtrend following renewed trade war fears. The market reversed its downtrend on Wednesday and yesterday it accelerated higher following breaking above the 2,900 mark. However, it still looks like a correction within a downtrend.
Concluding, the S&P 500 index will likely open lower today. The market may continue to fluctuate following its recent sell-off. However, if the index breaks above its yesterday's local high, we could see more buying pressure.
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
