Briefly:
Intraday trade: The S&P 500 index lost 0.7% after opening 0.6% lower. The broad stock market will likely open higher today. We may see some more short-term volatility.
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 0.3-1.5% on Monday, extending their recent decline, as investors' sentiment worsened again. On Monday a week ago the S&P 500 index fell the lowest since late March, and it got very close to the 2,800 mark (daily low at 2,801.43). Then it rebounded to the resistance level of around 2,890-2,900. It currently trades 3.9% below its May the 1st record high of 2,954.13. The Dow Jones Industrial Average lost 0.3% and the Nasdaq Composite lost 1.5% on Monday.
The nearest important resistance level of the S&P 500 index is now at 2,850-2,855, marked by yesterday's daily gap down of 2,853.86-2,854.23. The resistance level is also at 2,880-2,900, marked by the previous support level. On the other hand, the support level is at 2,830, marked by the short-term local low. The support level is also at around 2,800-2,820.
The broad stock market retraced all of its December sell-off and it broke above the last year's high recently. 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. Last week the S&P 500 index retraced some of its recent declines. For now, it looks like an upward correction before another leg down:
Positive Expectations, Short-Term Consolidation
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.5-0.9% above their Monday's closing prices. The European stock market indexes have gained 0.7-1.1% so far. There will be no new important economic data announcements today.
The broad stock market will likely fluctuate following its late last week's downward reversal. It bounced off the resistance level on Friday and it retraced some of its recent advance. For now, it looks like a consolidation following the early May decline.
The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of the yesterday's decline. The nearest important level of resistance is now at around 2,860-2,870, marked by the recent local highs. On the other hand, the support level is at 2,840, among others. The futures contract gets closer to its yesterday's overnight consolidation, as we can see on the 15-minute chart:
Nasdaq Remains Below 7,500 Mark
The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its yesterday's sell-off. The market fell almost 600 points from its late April record high of around 7,880, before bouncing off the 7,300 mark a week ago. It retraced more than 300 points from that local low. But then it reversed its upward course again. The resistance level remains at around 7,500, marked by the recent local lows. On the other hand, the support level is at 7,300-7,350. The Nasdaq futures contract trades above its short-term downward trend line this morning, as the 15-minut chart shows:
Apple, Microsoft - Mixed Picture
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 last week's Monday it fluctuated along the short-term resistance level of $190. Yesterday, the price broke lower:
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 was trading within a downward correction. On Friday it got back closer to the resistance level of $130-132, but yesterday it retraced some of the advance:
Dow Jones Going Sideways
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. Last week the blue-chip stocks' gauge followed the broad stock market, as it accelerated the downtrend. But then the market bounced off the 25,500 mark, and at its important 200-day moving average:
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. A week ago it sold off to the 2,800 mark. Since then it trades within a short-term consolidation.
Concluding, the S&P 500 index will likely open higher today and it may retrace some of its yesterday's decline. We may see more sideways trading action following the early May decline.
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
