Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Intraday outlook: The broad stock market will likely open higher today. The S&P 500 index may retrace some of its recent decline. It will likely extend the consolidation following early August sell-off.
The U.S. stock market indexes were mixed between -0.1% and +0.4% on Thursday, as investors hesitated following Wednesday's sell-off. The S&P 500 index fell over 200 points from its record high of 3,027.98 early last week. Then it retraced more than 120 points of that sell-off, before getting back to the low again yesterday. The Dow Jones Industrial Average gained 0.4% and the Nasdaq Composite lost 0.1% yesterday.
The nearest important resistance level of the S&P 500 index is at around 2,850, marked by the recent support level. The resistance level is also at 2,890-2,900. On the other hand, the support level is at 2,820-2,825, marked by the short-term local lows. The next resistance level is at 2,800.
The broad stock market broke below its two-month-long upward trend line in early August, and then it quickly retraced most of the June-July advance. The S&P 500 index remains below the previous medium-term local highs. 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:
Positive Expectations, Upward Reversal?
The index futures contracts trade 0.9-1.1% higher vs. their yesterday's closing prices. So expectations before the opening of today's trading session are positive. The European stock market indexes have gained 0.6-1.0% so far. Investors will wait for some economic data releases: Building Permits, Housing Starts at 8:30 a.m., Preliminary UoM Consumer Sentiment at 10:00 a.m.
The S&P 500 futures contract trades within an intraday consolidation following an overnight advance. The nearest important resistance level is at 2,880-2,900. On the other hand, the support level is at 2,860-2,865. The futures contract is at the previous local low this morning, as the 15-minute chart shows:
Nasdaq 100 Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It bounced off support level of 7,350-7,400 recently. The nearest important resistance level is now at 7,600-7,650. The Nasdaq futures contract is at the 7,600 mark again, as we can see on the 15-minute chart:
Tech Stocks - Uncertainty Following Recent Declines
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock retraced most of the recent decline on Tuesday, as it got back to the broken upward trend line. But then it reversed off the resistance level of $210-215. The market is close to the $200 price again:
Now let's take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock remains below the broken upward trend line. The resistance level is still at $140-145:
Dow Jones Extends Downtrend
The Dow Jones Industrial Average broke below its upward trend line in late July. Then it fell to around 25,500, before bouncing off its 200-day moving average. On Wednesday the blue-chip stocks' gauge got back lower and it broke below that average. Yesterday it extended the downtrend, before bouncing back above 25,500. However, there have been no confirmed positive signals so far:
The S&P 500 index broke below the upward trend line recently, as investors reacted to the Fed's Rate Decision release, among other factors. We saw technical overbought conditions along with negative technical divergences in the late July. And the market declined following renewed trade war fears. Last week it rebounded off the support level, but this week the index retraced most of the advance. If it breaks lower, we could see more selling pressure. However, we can see some short-term oversold conditions.
Concluding, the S&P 500 index will likely open higher today. The market may retrace its recent sell-off. So we could see more consolidation following early August 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
