Briefly:
Intraday trade: The S&P 500 lost 0.8% on Monday, after opening 0.8% lower. The market will probably open virtually flat today. We may see some more short-term sideways trading action.
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 0.8-1.1% on Monday, retracing their Friday's advance, as investors' sentiment worsened again. The S&P 500 index extended its rebound off the December 26th medium-term low of 2,346.58 recently. The index traded 20.2% below the September 21st record high of 2,940.91 on that day. Then the market rallied and retraced more than 50% of the move down (at 2,643.74). It broke slightly above 2,600 and it got closer to 2,700 more than a week ago. Since then it trades within a short-term consolidation. The Dow Jones Industrial Average lost 0.8% and the Nasdaq Composite lost 1.1% on Monday.
The nearest important resistance level of the S&P 500 index is now at 2,645-2,655, marked by the recent support level and yesterday's daily gap down of 2,644.97-2,657.33. The next resistance level is at 2,675-2,685, marked by the early December local highs. The resistance level is also at 2,700-2,710. On the other hand, the nearest important support level is at around 2,620-2,625, marked by yesterday's daily low. The support level is also at 2,600-2,610.
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. The downward correction reached 20.2% from the September all-time high, surpassing last year's January-February correction of around 12%. Since then, the market has retraced more than 50% of the whole decline off the September high. The index trades close to a possible resistance level of its previously broken upward trend line, as we can see on the daily chart:
Short-Term Fluctuations
The index futures contracts trade between -0.05% and +0.05% vs. their Monday's closing prices. So expectations before the opening of today's trading session are virtually flat. The European stock market indexes have gained 0.2-1.2% so far. Investors will now wait for the Consumer Confidence number release at 10:00 a.m. Investors will also wait for the quarterly corporate earnings releases. The broad stock market will likely fluctuate within a short-term consolidation for some more time. There have been no confirmed negative signals so far.
The S&P 500 futures contract trades within an intraday consolidation following an overnight advance. The nearest important level of resistance is at around 2,645-2,650, marked by the local highs. On the other hand, the support level is at 2,620-2625, among others. The futures contract extends its short-term fluctuations, as the 15-minute chart shows:
Nasdaq Also Going Sideways
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market gained over 1,000 points from December the 26th local low of around 5,820 in the recent weeks. The nearest important resistance level is now at 6,750-6,800. The support level is at 6,650, marked by the recent fluctuations. The Nasdaq futures contract is close to 6,700 mark again, as we can see on the 15-minute chart:
Apple Ahead of Earnings Release, Rebound to Continue?
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). Apple will release its quarterly earnings today after the trading session's close, so we may see an increased volatility. The stock sold off in 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 still trades at the resistance level of $155-160:
Now let's take a look at the daily chart of Amazon.com, Inc. (AMZN). The stock accelerated its downtrend in the late December and it reached a new medium-term low of $1,307. Since then it has been consequently advancing. The market broke above one of its three-month-long downward trend lines. There is a close resistance level at around $1,700-1,750:
Dow Jones Within a Consolidation
The Dow Jones Industrial Average extended its short-term uptrend on Friday, as it broke above the recent trading range. The market is back above its October-December local lows. So will it continue higher and reach the record high again? There have been no confirmed negative signals so far. However, the resistance level remains at the mentioned 25,000 level:
The S&P 500 index extended its short-term uptrend a week ago, as it broke above the mentioned 50% retracement of the whole downtrend from the record high. Is this a new medium-term uptrend? The market trades within a short-term consolidation since last week. For now, it looks like a flat correction within an uptrend.
Concluding, the S&P 500 index will likely open virtually flat today. We may see some more fluctuations ahead of the important 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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