Briefly:

Intraday trade: The S&P 500 index gained 2.2% on Tuesday, after opening 0.6% higher. The broad stock market will probably open lower today. We may see a short-term downward correction or just consolidation following the recent advance.

We still think that the speculative long position in the S&P 500 index is justified from the risk/reward perspective, because the market may have reached the panic bottom of a downward correction on October the 11th. However, we decided to raise our stop-loss level and a profit target level to protect our already profitable trading position.

Trading position (short-term; our opinion): long positions in the S&P 500 index with a stop-loss order of 2,750 and the profit target of 2,890 are justified from the risk/reward perspective.

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

Short-term outlook (next 1-2 weeks): bullish
Medium-term outlook (next 1-3 months): neutral

The U.S. stock market indexes gained 2.2-2.9% on Tuesday, retracing some of their recent decline, as investors' sentiment improved ahead of the quarterly corporate earnings releases. The S&P 500 index bounced off its long-term upward trend line. It is currently 4.5% below September the 21st record high of 2,940.91. The Dow Jones Industrial Average gained 2.2% and the Nasdaq Composite gained 2.9% on Monday.

The nearest important level of resistance of the S&P 500 index is now at around 2,825-2,830, marked by August the 16th daily gap up of 2,827.95-2,831.44. The next resistance level is at 2,850-2,860. On the other hand, the nearest important level of support is at 2,795-2,800, marked by last Thursday's daily high. The support level is also at 2,775, marked by some recent local highs.

The broad stock market continued retracing its medium-term advance last week, as it got closer to 2,700 mark. Then it bounced on Friday, retracing some of the decline. Yesterday, the index broke above the resistance level of around 2,800. Will it continue higher? For now, it looks like an upward correction following the recent sell-off:

Close to Local Highs

The index futures contracts trade 0.3-0.4% below their yesterday's closing prices. So expectations before the opening of today's trading session are negative. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements this morning: Housing Starts, Building Permits, Crude Oil Inventories at 10:30 a.m. The broad stock market will likely retrace some of its yesterday's run-up today. We could see short-term volatile fluctuations along the level of 2,800 (the S&P 500 index).

The S&P 500 futures contract trades within an intraday downtrend, as it retraces its overnight advance. The nearest important level of resistance is at around 2,815-2,820, marked by the local high. On the other hand, the support level is at 2,800. The support level is also at 2,780, marked by some recent local highs. The futures contract trades above its short-term upward trend line, as the 15-minute chart shows:

Nasdaq Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its yesterday's run-up. The tech stocks' gauge broke below 7,000 mark recently, and it traded closer to the level of 6,900 on Thursday. So it fell over 800 points off its October the 1st record high above the level of 7,700. Yesterday it bounced back above 7,300 mark. We could see more short-term volatility. The nearest important level of resistance is at around 7,350. On the other hand, the support level is at 7,250-7,300, among others. The Nasdaq futures contract retraced most of its last week's Wednesday's-Thursday's sell-off, as we can see on the 15-minute chart:

Big Cap Tech Stocks - Upward Reversal or Just Correction?

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It reached the new record high at the level of $233.47 in the early October, as it continued to act relatively strong. Then the stock retraced its rally. Apple trades within an almost two-month-long consolidation, and the support level remains at around $215:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It traded within a clear short-term downtrend following breaking down below its upward trend lines. The downtrend accelerated on Wednesday, and the stock continued lower on Thursday. On Friday we wrote that "we can see an attempt at bouncing off the support level of around $1,700" And the stock did bounce off the support level. For now, it looks like an upward correction:

Dow Jones Bounced Off 25,000 Mark

The Dow Jones Industrial Average reached its new all-time high at the level of 26,951.81 on October the 3rd. Then the blue-chip stocks' gauge broke below its medium-term upward trend lines and the support level of around 26,000. And then it accelerated lower. On Friday the market bounced off the support level of around 25,000. The index continued upwards yesterday, but it remains below 26,000 mark:

The S&P 500 index sold off last week, following breaking down below its early September local lows. The market sharply reversed its medium-term uptrend. Then it fell closer to 2,700 mark on Thursday. Since then it is retracing some of the decline. Yesterday we saw a rally and a breakout above the level of 2,800. But will the broad stock market continue higher? For now, it looks like an upward correction.

Concluding, the S&P 500 index will probably open lower today. The market trades within an upward correction following the recent sell-off. We may see some more short-term volatility ahead.

Trading position (short-term; our opinion): long positions in the S&P 500 Index with a stop-loss order at 2,750 and the profit target of 2,890 are justified from the risk/reward perspective.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts