Briefly:
Intraday trade: The S&P 500 index gained 2.1% after opening 0.7% higher on Tuesday. The broad stock market will likely open higher again today. The market may reach its late May local highs and then we could see a short-term consolidation.
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 2.1-2.7% on Tuesday, retracing their recent decline, as investors' sentiment much improved following the speech from Fed Chair Powell. The S&P 500 index traded around 75 points above its Monday's local low yesterday. It is currently 5.1% below its May the 1st record high of 2,954.13. The Dow Jones Industrial Average gained 2.1% and the Nasdaq Composite gained 2.7% on Tuesday.
The nearest important resistance level of the S&P 500 index is now at 2,820-2,840, marked by the late May consolidation. The resistance level is also at 2,850-2,860. On the other hand, the nearest important support level is at 2,770-2,780.
The broad stock market broke above the last year's high in the early May. But then the S&P 500 index retraced all of the April's advance. The market also broke below its two-month-long upward trend in the early May. It is currently trading below the month-long trend line:
Positive Expectations Again
Expectations before the opening of today's trading session are positive, because the index futures contracts trade 0.7-0.8% above their Tuesday's closing prices. The European stock market indexes have gained 0.4-0.7% so far. Investors will wait for series of economic data announcements today: ADP Non-Farm Employment Change at 8:15 a.m., ISM Non-Manufacturing PMI at 10:00 a.m., Crude Oil Inventories at 10:30 a.m., the Beige Book release at 2:00 p.m.
The broad stock market will likely extend its short-term uptrend this morning. The S&P 500 will likely got back to its late May consolidation. But for now, it still looks like an upward correction within a downtrend.
The S&P 500 futures contract trades within an intraday uptrend, as it extends the short-term advance. The nearest important resistance level is now at around 2,830-2,840, marked by the previous local highs. On the other hand, the support level is at 2,790-2,800, marked by the recent resistance level. The futures contract trades along the short-term upward trend line this morning, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it retraces more of its recent sell-off this morning. The nearest important resistance level is at 7,250-7,300. On the other hand, the support level is now at 7,150-7,200. The Nasdaq futures contract reached its recent consolidation this morning, as we can see on the 15-minute chart:
Big Cap Tech Stocks - Upward Reversal or Just Correction?
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock extended its rally on May the 1st following the quarterly earnings release. Then the price reversed the upward course and broke below the medium-term upward trend line. Since then it was trading within a downtrend. And yesterday the stock broke above the downward trend line:
Now let's take a look at the daily chart of Microsoft Corp. (MSFT). The stock accelerated its uptrend in late April, as it reached the new record high of $131.37. Since then, the market was trading within a consolidation. On Monday it broke below the support level, and yesterday it got back higher. For now, it looks like an upward correction:
Dow Jones Above 25,000 Again
The Dow Jones Industrial Average has been relatively weaker than the broad stock market since February. The resistance level remained at around 26,800-27,000, marked by the last year's topping pattern and the record high of 26,951.8. Last week the blue-chip stocks' gauge followed the broad stock market, as it accelerated the downtrend. The market broke below its important 200-day moving average. Yesterday it came back above the 25,000 mark:
The S&P 500 index accelerated its short-term downtrend on Monday, as it fell to the local low of around 2,729. Yesterday it came back higher and it closed above the 2,800 mark. So was it an important upward reversal or just an upward correction? The market remains below the mentioned month-long downward trend line.
Concluding, the S&P 500 index will likely open higher today. The market may retrace more of its recent sell-off. However, we could see a short-term profit taking action at some point.
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
