Briefly:
Intraday trade: The S&P 500 gained 1.1% on Tuesday, after opening 0.1% higher. The market will probably open virtually flat today. We may see some more short-term fluctuations following the recent rally.
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 0.7-1.7% on Tuesday, extending their short-term uptrend following breaking out above the recent consolidation. The S&P 500 index continued its rebound off the December the 26th medium-term low of 2,346.58. The index traded 20.2% below September the 21st record high of 2,940.91 on that day. Then the market rallied and retraced some of the downtrend. It broke slightly above 2,600 mark yesterday. The Dow Jones Industrial Average gained 0.7% and the Nasdaq Composite gained 1.7% on Tuesday.
The nearest important level of resistance of the S&P 500 index is now at 2,635-2,640, marked by December the 14th daily gap down of 2,635.07-2,637.27. The next resistance level is at 2,675-2,685, marked by the early December local highs. On the other hand, the level of support is at 2,580-2,600, marked by the recent resistance level. The support level is also at 2,550-2,570.
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 level of 2,400. The downward correction reached 20.2% from the September all-time high, surpassing January-February correction of around 12%. Is this a long-term bear market? It still looks like a medium-term downward correction. And the index retraces some of its December sell-off, as we can see on the daily chart:
Flat Expectations
The index futures contracts trade between 0.0% and +0.1% vs. their yesterday's closing prices. So expectations before the opening of today's trading session are virtually flat. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements today: NAHB Housing Market Index at 10:00 a.m., Crude Oil Inventories at 10:30 a.m., the Beige Book at 2:00 p.m. Investors will also wait for more quarterly corporate earnings releases. The broad stock market will likely fluctuate following its yesterday's advance. We may see an attempt at extending the short-term uptrend.
The S&P 500 futures contract trades within an intraday consolidation following its yesterday's advance. The nearest important level of resistance is at around 2,615, marked by the local high. On the other hand, the support level remains at 2,595-2,600, among others. The futures contract remains above 2,600 mark, as the 15-minute chart shows:
Nasdaq Closer to 6,700
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It got closer to 6,700 mark yesterday, following the recent breakout above 6,600. It gained almost 900 points from December the 26th local low of around 5,820. The Nasdaq futures contract is now above its recent trading range, as we can see on the 15-minute chart:
Big Cap Tech Stocks Breaking Higher?
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock sold off in the early January, as it reached the new medium-term low of $142. We saw clear short-term oversold conditions and then the stock retraced some of its recent decline. It broke above the month-long downward trend line, but it remains below the resistance level of $155-160:
Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The stock accelerated its downtrend in the late December and it reached the new medium-term low of $1,307. Since then it was consequently advancing. On Tuesday a week ago the market reached its three-month-long downward trend line. Recently we wrote that "we may see an attempt at breaking higher" And it seems that the market is breaking higher:
Dow Jones Slightly Above 24,000
The Dow Jones Industrial Average broke below its two-month-long consolidation in the mid-December and then it accelerated much lower. The blue-chip stocks' gauge fell below the level of 22,000. It slightly extended the downtrend recently, before sharply reversing higher and getting back to 24,000 mark. The market is now slightly below its October - December trading range after retracing most of its post-breakdown sell-off:
The S&P 500 index extended its downtrend in the late December, before reversing higher. The broad stock market was more than 20% below its September's record high on December the 26th. Is this a new long-term bear market or just medium-term downward correction? For now, it looks just like a correction. However, there have been no confirmed medium-term positive signals so far. The market retraced some of its recent decline, but it continues to trade at the relatively important resistance levels.
Concluding, the S&P 500 index will likely open virtually flat today. The market may fluctuate above 2,600 mark. Investors will now wait for the quarterly corporate earnings releases.
Trading position (short-term; our opinion): no positions are justified from the risk/reward perspective.
Thank you.
Paul Rejczak
Stock Trading Strategist
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