Briefly:

Intraday trade: The S&P 500 lost 0.5% on Monday, after opening 0.6% lower. The market will probably open virtually flat to slightly higher today. We may see some more short-term fluctuations following the recent rally.

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 0.4-0.9% on Monday, retracing some of their recent advance, as investors took short-term profits off the table. The S&P 500 index continued its rebound off the December the 26th medium-term low of 2,346.58. The index traded 20.2% below September the 21st record high of 2,940.91 on that day. Then the market rallied and retraced some of the downtrend. It got very close to 2,600 mark again. The Dow Jones Industrial Average lost 0.4% and the Nasdaq Composite lost 0.9% on Monday.

The nearest important level of resistance of the S&P 500 index remains at 2,600, marked by the previous local lows. The resistance level is also at 2,635-2,640, marked by December the 14th daily gap down of 2,635.07-2,637.27. On the other hand, the level of support is at 2,550-2,570, and the next support level remains at 2,500, marked by some recent local highs.

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 level of 2,400. The downward correction reached 20.2% from the September all-time high, surpassing January-February correction of around 12%. Is this a long-term bear market? It still looks like a medium-term downward correction, but the index remains slightly below the October-December consolidation, as we can see on the daily chart:

Slightly Positive Expectations, but Will Uptrend Continue?

The index futures contracts trade 0.1-0.2% above their yesterday's closing prices. So expectations before the opening of today's trading session are slightly positive. The European stock market indexes have gained 0.1-0.2% so far. Investors will wait for some economic data announcements today: Producer Price Index, Empire State Manufacturing Index at 8:30 a.m. Investors will also wait for the quarterly corporate earnings releases. There will also be a Parliament Brexit Vote in the U.K. The broad stock market may extend the short-term consolidation today. For now, it looks like a flat correction within an uptrend.

The S&P 500 futures contract trades within an intraday consolidation following overnight decline. The nearest important level of support is at around 2,575-2,580, marked by some recent fluctuations. On the other hand, the resistance level is at 2,590-2,600. The futures contract remains within an almost week-long consolidation, as the 15-minute chart shows:

Nasdaq Remains Close to 6,600

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It broke above the level of 6,600 recently, but then it failed to continue higher. It gained more than 800 points from December the 26th local low of around 5,820 and then we saw some technical overbought conditions. The Nasdaq futures contract continues to trade within a consolidation, as we can see on the 15-minute chart:

Apple, Amazon - Uncertainty Following Recent Advances

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The stock sold off recently, 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 remains below the resistance level of $155-160:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. The stock accelerated its downtrend in the late December and it reached the new medium-term low of $1,307. Since then it was consequently advancing. On Tuesday a week ago the market reached its three-month-long downward trend line. We still may see an attempt at breaking higher:

Dow Jones Also Going Sideways

The Dow Jones Industrial Average broke below its two-month-long consolidation in the mid-December and then it accelerated much lower. The blue-chip stocks' gauge fell below the level of 22,000. It slightly extended the downtrend recently before sharply reversing higher and getting back to 24,000 mark. The market is now slightly below its October - December trading range after retracing most of its post-breakdown sell-off:

The S&P 500 index extended its downtrend in the late December, before reversing higher. The broad stock market was more than 20% below its September's record high on December the 26th. Is this a new long-term bear market or just medium-term downward correction? For now, it looks like a correction. However, there have been no confirmed medium-term positive signals so far. The market retraced some of its recent decline, but it continues to trade below the important resistance levels.

Concluding, the S&P 500 index will likely open slightly higher today. The market may extend its short-term consolidation. For now, it looks like a flat correction within an uptrend.

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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