Trading position (short-term; our opinion): No positions are justified from the risk/reward perspective.
Intraday outlook: The broad stock market will likely open higher today. We may see a consolidation or an upward correction following the recent sell-off. We will likely see more short-term volatility.
The U.S. stock market indexes lost 2.9-3.5% on Monday, as investors reacted to the negative trade war developments and tensions between the U.S. and China. The S&P 500 index fell over 200 points from its previous Friday's record high of 3,027.98. The Dow Jones Industrial Average lost 2.9% and the Nasdaq Composite lost 3.5% on Friday.
The nearest important resistance level of the S&P 500 index is now at around 2,850-2,870, marked by the recent support level. The resistance level is also at around 2,900, marked by the yesterday's daily gap down of 2,898.07-2,914.11. On the other hand, the support level is at 2,800-2,820, among others.
The broad stock market broke below its two-month-long upward trend line last week, and then it quickly retraced most of the June-July advance. So, the S&P 500 index is back below the previous medium-term local highs again. For now, it looks like a consolidation following the January-February advance. However, it could also play out as a long-term topping pattern ahead of a more meaningful downward correction:
Short-Term Rebound
The index futures contracts trade between +0.8% and +1.1% vs. their yesterday's closing prices. So expectations before the opening of today's trading session are positive. The European stock market indexes have gained 0.1-1.0% so far. There will be no new important economic data announcements today.
The S&P 500 futures contract trades within an intraday consolidation following an overnight rebound off a new short-term local low. The market gained over 2% following an after-hours' panic sell-off. The nearest important level of resistance is at around 2,830-2,835, marked by the intraday local lows. The support level is also at 2,880-2,900. On the other hand, the support level is at 2,780-2,800, among others. The futures contract retraced some of its yesterday's decline, as we can see on the 15-minute chart:
Nasdaq 100 Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within a consolidation this morning. It sold off overnight following breaking down below the 7,400 mark. The nearest important support level is now at 7,350-7,400. The Nasdaq futures contract remains below the resistance level of 7,500 this morning, as the 15-minute chart shows:
Big Cap Tech Stocks Selling Off
Let's take a look at the Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock continued to trade at the resistance level of $210-215 recently. It broke above its early May local high following last Tuesday's quarterly earnings release. However, the market reversed downwards off its new medium-term high and on Friday it broke below the upward trend line. Yesterday it accelerated much lower, as it fell below $200 price:
Now let's take a look at the daily chart of Microsoft Corp. stock (MSFT). The stock reached the new record high of $141.68 recently following quarterly earnings release. But on Wednesday it retraced most of the advance and it broke below the two-month-long upward trend line. Yesterday it accelerated lower. However, the price remains above the late April local high:
Dow Jones Below 26,000
The Dow Jones Industrial Average broke below its upward trend line on Wednesday. So the recent consolidation was a topping pattern. On Thursday the market broke below its previous medium-term high and yesterday it came back below the 26,000 mark. There have been no confirmed positive signals so far. However, we can see some short-term oversold conditions:
The S&P 500 index broke below the upward trend line last week, as investors reacted to the Fed's Rate Decision release. We saw technical overbought conditions along with negative technical divergences recently. And the market turned lower. Then it accelerated the downtrend following renewed trade war fears. Yesterday we closed our profitable short position ahead of the expected short-term bounce. But the market accelerated much lower. There have been no confirmed positive signals so far. However, we could see some increased volatility and another attempt at reversing the downtrend.
Concluding, the S&P 500 index will likely open higher today. Then the market may fluctuate following the decline. We could see an attempt at extending the overnight bounce.
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
