Briefly:
Intraday trade: The S&P 500 index lost 0.8% after opening 0.1% higher on Tuesday. The broad stock market will likely open lower today. We may see a breakdown below the recent local lows.
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 Tuesday, as investors' sentiment worsened following more trade war jitters. In the first half of May the S&P 500 index fell the lowest since late March, and it got very close to the 2,800 mark (the local low at 2,801.43). Then it rebounded to the resistance level of around 2,890-2,900. But yesterday it came back to the 2,800 mark again. It currently trades 5.1% below its May the 1st record high of 2,954.13. The Dow Jones Industrial Average lost 0.9% and the Nasdaq Composite lost 0.4% on Tuesday.
The nearest important resistance level of the S&P 500 index remains at 2,835-2,850, marked by last Thursday's daily gap down of 2,836.70-2,851.11. The resistance level is also at 2,865-2,870, marked by the recent local highs. On the other hand, the support level is at 2,800, marked by the recent local lows. The support level is also at 2,780-2,785.
The broad stock market retraced all of its December sell-off and it broke above the last year's in the early May. But then the index broke below the short-term consolidation and it retraced all of the April's advance. The market also broke below its two-month-long upward trend line. The index continued to bounce off the 2,800 mark recently, as we can see on the daily chart:
Negative Expectations
Expectations before the opening of today's trading session are negative, because the index futures contracts trade 0.7-0.8% below their Tuesday's closing prices. The European stock market indexes have lost 1.3-1.8% so far. Investors will wait for the Richmond Manufacturing Index release at 10:00 a.m. The broad stock market will likely break below its recent local lows today. So the index will be the lowest since early March. There have been no confirmed positive signals so far.
The S&P 500 futures contract trades within an intraday consolidation following an overnight decline. The nearest important resistance level is now at 2,800, and the support level is at around 2,780. The futures contract remains below the downward trend line, as the 15-minute chart shows:
Nasdaq Also Much Lower
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market broke below its recent local lows overnight. The resistance level is now at around 7,250-7,300. On the other hand, the support level is at 7,150-7,200, among others. The Nasdaq futures contract broke below its short-term consolidation, as we can see on the 15-minute chart:
Microsoft Going Sideways - Topping Pattern?
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 its upward course and broke below the medium-term upward trend line. Since then it trades within a downtrend. The nearest important support level remains at $175-180:
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. Investors reacted to a better-than-expected quarterly earnings release. Since then, the market is trading within a consolidation. It remains relatively stronger than the broad stock market:
Dow Jones Breaking Lower?
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. Recently the blue-chip stocks' gauge followed the broad stock market, as it accelerated the downtrend. The market is still close its important 200-day moving average, but we may see a breakdown here:
The S&P 500 index has reached the new record high on May the 1st. The broad stock market extended its medium-term uptrend, as investors' sentiment remained very bullish following economic data, quarterly corporate earnings releases. But then it quickly retraced its April's advance following the renewed trade war fears. More than a week ago it sold off to the 2,800 mark, before bouncing off that support level. But last week it got back down again. Today we may see a breakdown below the previous local lows.
Concluding, the S&P 500 index will likely open lower today. The month-long downtrend may accelerate. For now, it looks like a correction following the December-May rally.
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
