Briefly:
Intraday trade: The S&P 500 gained 1.3% on Tuesday, after opening 0.4% higher. The market will probably open higher again today. Then we may see some short-term fluctuations below the resistance level.
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 gained 1.3-1.5% on Tuesday, following a breakout above the recent local high. The S&P 500 index retraced more of its October-December downward correction of 20.2% (2,713.88). It gets closer to the previous local highs along the 2,800 level. Both the Dow Jones Industrial Average and the Nasdaq Composite gained 1.5% on Tuesday.
The nearest important resistance level of the S&P 500 index is now at around 2,785-2,800, marked by the previous medium-term local highs. On the other hand, the support level is at 2,720, marked by the yesterday's daily gap up of 2,718.05-2,722.61. The support level is also at 2,680-2,700.
The broad stock market broke below its two-month-long trading range in the mid-December, as the S&P 500 index fell below the level of 2,600. Then the market accelerated lower and it broke below the 2,400 mark. Since then, it has retraced more than 61.8% of the whole decline off the September high. The index got closer to its October-November local highs and the resistance level of 2,800 recently, as we can see on the daily chart:
Positive Expectations Again
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.4-0.6% above their Tuesday's closing prices. The European stock market indexes have gained 0.1-0.6% so far. Investors will wait for some economic data announcements today: Consumer Price Index at 8:30 a.m., Crude Oil Inventories at 10:30 a.m. The broad stock market will likely get extend its short-term uptrend today. But then we may see some uncertainty, as the market gets closer to the medium-term resistance level.
The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following the yesterday's rally. The nearest important level of resistance is at around 2,755, marked by the local high. On the other hand, the support level is at 2,740, among others. The futures contract remains close to the 2,750 mark this morning, as the 15-minute chart shows:
Nasdaq Above 7,000 Mark
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market gained almost 1,250 points from December the 26th local low of around 5,820. The nearest important resistance level is now at 7,100-7,150. The support level is at 6,950-7,000, among others. The Nasdaq futures contract is above its short-term upward trend lines, as we can see on the 15-minute chart:
Big Cap Tech Stocks - Will They Break Higher?
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). Apple released its quarterly earnings recently. Then the stock broke above the recent trading range and the resistance level of $155-160. It retraced some more of its November-December sell-off. But on Thursday it bounced off $175, retracing some of the recent advance. For now, it still looks like a short-term downward correction:
Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The market broke above one of its three-month-long downward trend lines a month ago. Since then it has been going sideways. There is a resistance level at around $1,700-1,750. Recently it bounced off that resistance level following quarterly earnings release. Yesterday, the stock got closer to the downward trend line again:
Dow Jones at Local High Again
The Dow Jones Industrial Average is back at the short-term local high again, as it gets closer to the resistance level of 25,500-26,000. Will the blue-chip stocks' gauge continue higher and reach its record high? Or reverse lower in the near term? There have been no confirmed negative signals so far:
The S&P 500 index broke above its recent local high yesterday, as it got close to the 2,750 mark. Is this a new medium-term uptrend or still just upward correction before another medium-term leg lower? The market trades above the 61.8% Fibonacci retracement of the whole medium-term decline. There have been no confirmed negative signals so far.
Concluding, the S&P 500 index will likely open higher today. We may see another new local high within an over month-long uptrend. However, there are some short-term technical overbought conditions.
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
