Briefly:

Intraday trade: Our Monday's intraday outlook was neutral. The S&P 500 index lost 0.8% after opening 0.2% higher. Stocks will likely extend their short-term consolidation on the first day of a new month. We prefer to be out of the market, avoiding low risk/reward ratio trades.

Medium-term trade: In our opinion, no medium-term positions are justified.

Our intraday outlook is neutral. Our short-term outlook is neutral, and our medium-term outlook is neutral:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes lost between 0.6% and 0.8% on Monday, as investors' sentiment worsened despite last week's better-than-expected quarterly earnings releases. The S&P 500 index got closer to its last Thursday's daily gap up. It trades 7.9% below January 26 record high of 2,872.87. The Dow Jones Industrial Average lost 0.6% and the technology Nasdaq Composite lost 0.8% on Monday.

The nearest important level of resistance of the S&P 500 index remains at 2,680-2,685, marked by previous local highs. The next resistance level is at 2,695-2,710, marked by March 22 daily gap down of 2,695.68-2,709.79. The resistance level is also at 2,740. On the other hand, support level is at around 2,745-2,750, marked by Thursday's daily gap up of 2,645.30-2,647.16. The level of support is also at 2,610-2,615, marked by recent local low.

The broad stock market continues to trade above its medium-term upward trend line. Stocks extend their over two-month-long consolidation following early February sell-off. Is this a bottoming pattern before another leg higher within the long-term bull market? Or just pause before another wave of selling? So, there are still two possible future scenarios - bearish that will lead us below February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or breakout towards 3,000 mark:

Flat Expectations

Expectations before the opening of today's trading session are slightly negative, because the index futures contracts trade 0.1% lower vs. their yesterday's closing prices. The main European stock market indexes have gained 0.5-0.7% so far. Investors will wait for some economic data announcements: ISM Manufacturing PMI, Construction Spending number at 10:00 a.m. Investors will also wait for more quarterly earnings releases. The S&P 500 index will probably continue to fluctuate within a short-term consolidation. The market remains below resistance level of 2,700. If it breaks below the medium-term upward trend line, it could continue towards February 9 low of 2,532.69.

The S&P 500 futures contract trades within an intraday downtrend, as it retraces its overnight bounce. The nearest important level of support is now at around 2,640-2,645, marked by short-term local lows. The next level of support is at 2,600-2,620. On the other hand, resistance level is at 2,650-2,660, among others. The futures contract trades within a consolidation following yesterday's move down, as we can see on the 15-minute chart:

Nasdaq at 6,600 Mark

The technology Nasdaq 100 futures contract extends its short-term downtrend this morning. It currently trades below the level of 6,600. The nearest important level of resistance is at around 6,230-6,250, marked by short-term local highs. The next level of resistance is at 6,670-6,700. On the other hand, support level is at 6,560-6,580, among others. The Nasdaq futures contract broke below its short-term upward trend line, as the 15-minute chart shows:

Mixed Expectations Ahead of Apple Earnings Release

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached a new short-term low on Friday, following technology sector intraday move down. However, it remains at support level of around $160-165. Apple will release its earnings report today after-hours and we will likely see a more clear reaction. Probably to the upside, as there seems to be some "sell the rumor, buy the fact" action going on:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The price reached new record high on Friday morning, as investors reacted to better-than-expected quarterly earnings release. Then it sold off below $1,600. Is this a downward reversal or just correction following breakout higher? If the price breaks below support level of around $1,550, we could see more selling pressure. For now, it looks like a downward correction:

Dow Jones Closer to 24,000 Mark

The Dow Jones Industrial Average continues to trade along its medium-term downward trend line following last week's Tuesday's breakdown below that line. The price bounced off resistance level of around 24,800-25,000 two weeks ago. Will it resume its uptrend after a downward correction? The support level remains at around 23,800-24,000. The blue-chip index extends its medium-term fluctuations:

Expectations before the opening of Friday's trading session were positive, but stocks closed virtually flat after opening higher. Then they continued lower on Monday. The broad stock market extends its medium-term consolidation following the early February sell-off. Just like we wrote in our several Stocks Trading Alerts, the early February sell-off set the negative tone for weeks or months to come. Stocks rallied on better-than-expected big cap tech companies' earnings releases, but will medium-term sentiment improve? It's hard to say. For now, it looks like a flat correction within a medium-term downtrend.

Concluding, the S&P 500 index will probably continue to fluctuate within its consolidation along the level of 2,650. Investors will wait for the quarterly earnings release from Apple, Inc. It may set the tone for the nearest future. The recent bearish price action is suggesting that stocks may break below their late April local lows, but we may see some more short-term uncertainty.

Currently, we prefer to be out of the market, avoiding low risk/reward ratio medium-term trades. We will let you know when we think it is safe to get back in the market.

To summarize: no medium-term positions are justified from the risk/reward perspective at this moment.

Intraday trade:

No intraday position is justified from the risk/reward perspective today.

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts