Briefly:

Intraday trade: Our Monday's intraday trading outlook was neutral. The market opened 0.4% higher and closed 1.2% higher. The S&P 500 index broke above its short-term consolidation following daily gap up opening. It may retrace some more of its late January - early February sell-off, but we can see some short-term overbought conditions. Therefore, we prefer to be out of the market today, 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 extended their short-term rally on Monday, as they gained 1.2-1.6% vs. Friday's closing prices. Investors' sentiment improved following week-long fluctuations after previous week's rally off February 9 lows. The S&P 500 index broke above its short-term consolidation and it retraced more of its late January - early February sell-off, after breaking above Fibonacci's 61.8% retracement of 2,742.92. The Dow Jones Industrial Average gained 1.6%, and the technology Nasdaq Composite gained 1.2% on Monday.

The nearest important level of resistance of the S&P 500 index is now at around 2,800-2,810, marked by the February 2 daily gap down of 2,808.92-2,812.70, among others.  On the other hand, support level is at around 2,750, marked by last week's fluctuations. The next level of support is at 2,700-2,720, among others. If the market continues higher, potential resistance level would be at 2,840-2,850, marked by the late January daily gap down.

The S&P 500 index reached its record high a month ago on January 26. It broke below month-long upward trend line, as it confirmed uptrend's reversal. Then the broad stock market gauge retraced all of its January rally and continued lower. The index extended its downtrend on February 9, as it was almost 12% below the late January record high. We can see that stocks reversed their medium-term upward course following whole retracement of last month's euphoria rally. However, the market bounced off its almost year-long medium-term upward trend line, and it retraced more than 61.8% of the sell-off within a few days of trading. Is this just an upward correction or uptrend leading to new all-time highs? It still looks like an upward correction, but the index is closer to retracing all of its sell-off:

Slightly Negative Expectations

The index futures contracts are losing 0.2-0.3% vs. their Monday's closing prices this morning. It means that investors' expectations ahead of the opening of trading session are slightly negative and stocks may retrace some of their yesterday's move up. The European stock market indexes have lost 0.1-0.5% so far. Investors will wait for some economic data announcements: Durable Goods Orders, Wholesale Inventories at 8:30 a.m., Consumer Confidence number at 10:00 a.m. Will the market resume its yesterday's uptrend after the opening of cash market's trading session? The S&P 500 index may fluctuate within some flat correction following this short-term move up.

The S&P 500 futures contract trades within an intraday consolidation, after an overnight pull-back. It currently trades around 1% below potential resistance level of 2,800. The resistance level is also at around 2,785, marked by by local high. On the other hand, support level is at 2,775, and the next level of support is at 2,750-2,760, marked by some recent fluctuations. The futures contract trades well above its recent consolidation, as the 15-minute chart shows:

Nasdaq Closer to Record High

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates after its yesterday's advance. The market backs off slightly from an overnight local high above 7,000 mark. It has retraced almost all of its severe late January - early February move down. So, it was a quite spectacular show of strength. But will tech stocks reach new record high soon or reverse their upward course and form some medium-term double top pattern? For now, it looks like a new leg within a bull market, but we may see some more volatility. Potential resistance level is at around 7,000-7,050, marked by record high. On the other hand, support level is at around 6,950, among others. The Nasdaq futures contract broke below its short-term upward trend line, as we can see on the 15-minute chart:

Both Apple and Amazon at New Record Highs

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It was one of the recent stock market rout's main drivers. Then it led broad stock market rebound rally. It fell close to support level of $150 on February 9. Since then, it was retracing its early February losses. The market reached new record high yesterday, as it slightly exceeded its January 18 high. We can see some negative technical divergences. However, there have been no confirmed negative signals so far:

Amazon.com, Inc. stock (AMZN) continues to be relatively strong vs. the broad stock market. It reached new record high yesterday, as it continued its uptrend above $1,500 mark. The stock trades well above its end of year closing price of $1,167.5. AMZN bounced off its upward trend line more than two weeks ago, following downward correction below the price of $1300. We also can see some negative technical divergences However, there have been no confirmed negative signals so far:

The Dow Jones Industrial Average daily chart shows that blue-chip index reversed its uptrend a month ago. The price broke below the level of 26,000 and continued much lower. There were some medium-term negative technical divergences - the most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low.

The DJIA fell below 23,500 on Friday two weeks ago. We saw positive candlestick chart pattern that day. The market formed bullish harami. It is a pattern in which a large black candlestick is followed by a smaller white candlestick with body located within the body of a preceding day. Since then, it continued higher. The market broke the resistance level of around 25,500 yesterday. Will it continue higher and retrace more of its early February sell-off? It may continue upwards, but there is a potential resistance level at 26,000:

Concluding, the S&P 500 index extended its Friday's rally yesterday, as it gained 1.2% following gap-up opening of the trading session. The broad stock market is expected to retrace some of this rally today, as investors' sentiment slightly worsened overnight. Investors took some short-term profits off the table last week, but they resumed buying stocks on Friday. The market got closer to its month-long record high. Will it come back to that record high? It is hard to say, but we can see some bullish pressure, as investors' sentiment improves following economic data, quarterly earnings releases.

The broad stock market was falling almost 12% off its late January record high on February 9 before an intraday reversal. It was a final panic selling ahead of short-term upward reversal, and the market found a support of its medium-term upward trend line, which was at 2,550. The index extended its week-long rebound almost a week ago on Friday, and it continued above 61.8% retracement of the sell-off.

The S&P 500 index retraced its whole month-long January rally and fell the lowest since early October. Then it retraced more than 61.8% of this relatively quick and deep sell-off. So, medium-term picture is now quite neutral. Investors took profits off the table following the unprecedented month-long rally, but then they began selling in panic. It was quite similar to 2010 Flash Crash event. This sell-off set the negative tone for weeks or months to come, despite recent broad stock market rebound.

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
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