Briefly:

Intraday trade: The S&P 500 index gained 0.2% on Tuesday, after opening 0.2% higher. Our intraday neutral trading outlook has proved accurate. The broad stock market will probably open lower today, as sentiment worsens again. Stocks may fluctuate along the support level. Therefore, we prefer to be out of the market, 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 gained 0.1-0.4% on Tuesday, retracing some of their Monday's decline, as investors' sentiment slightly improved. The S&P 500 index bounced off 2,700 mark and it currently trades 5.2% below the January's 26th record high of 2,872.87. The Dow Jones Industrial Average gained 0.1% and the technology Nasdaq Composite gained 0.4% on Tuesday.

The nearest important level of resistance of the S&P 500 index is at around 2,740-2,750, marked by the previous support level along with Monday's daily gap down of 2,742.94-2,752.68. The next resistance level is at 2,780-2,800, On the other hand, support level is at around 2,695-2,700, marked by Monday's daily low. The support level is also at 2,675-2,680, marked by the late May local low.

The broad stock market accelerated its short-term downtrend on Monday, as the S&P 500 index fell the lowest since the end of May. Will the downtrend continue? Or was it some final panic selling before an upward reversal? It's hard to say. If the index breaks below 2,700 mark, we could see more downward action. There are still two possible medium-term scenarios - bearish that will lead us below the February low following trend line breakdown, and the bullish one in a form of medium-term double top pattern or breakout towards 3,000 mark. There is also a chance that the market will just go sideways for some time, and that would be positive for bulls in the long run (some kind of an extended flat correction). The S&P 500 index broke below its two-month-long upward trend line recently:

Futures Rebounded but Still Lower

The index futures contracts are trading 0.4-0.7% below their Tuesday's closing prices. So expectations before the opening of today's trading session are negative. The main European stock market indexes have gained 0.1-0.2% so far. Investors will wait for some economic data announcements: Durable Goods Orders, Wholesale Inventories at 8:30 a.m., Pending Home Sales number at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The broad stock market will likely extend its short-term fluctuations along the support level. So we may see more short-term uncertainty. Is this some bottoming pattern before downward reversal or just relatively flat correction before another leg lower? For now, it looks like a correction within a short-term downtrend. There have been no confirmed positive signals so far.

The S&P 500 futures contract trades within an intraday consolidation, as it retraces some of its overnight move down. The nearest important level of support is at around
2,700-2,710, marked by the short-term local lows. On the other hand, the nearest important level of resistance is at around 2,730-2,735, marked by the local highs. The resistance level is also at 2,740-2,745. The futures contract trades within a consolidation along the level of 2,700, as we can see on the 15-minute chart:

Nasdaq Also Lower

The technology Nasdaq 100 futures contract follows a similar path, as it bounces off an intraday low of around 7,015. Yesterday, the market fell slightly below 7,000 mark, before bouncing off that support level. Then it reversed its rebound after reaching local high of around 7,130. For now it looks like a short-term consolidation. The nearest important level of resistance is at around 7,100-7,150, marked by the recent support level. On the other hand, support level remains at the above-mentioned 7,000 mark. The level of support is also at 6,900. The Nasdaq futures contract remains below its short-term downward trend line, as the 15-minute chart shows:

Apple, Amazon - Uncertainty Following Recent Declines

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It trades within a short-term downtrend since the beginning of the month. The decline accelerated on Monday, as price got closer to a potential support level of $180. Then it rebounded and got close to its downward trend line again. Will it continue lower? There have been no confirmed short-term positive signals so far:

Now let's take a look at Amazon.com, Inc. stock (AMZN) daily chart. It reached the new record high on Thursday, as it was relatively much stronger than the broad stock market. Then it reversed its uptrend on Friday and accelerated lower on Monday. We saw negative technical divergences in the recent days. They signaled a potential downward reversal. The level of resistance is now at around $1,700. We can see a potential upward reversal pattern (bullish harami):

Dow Jones at its 200-day Moving Average

The Dow Jones Industrial Average broke below its two-month-long upward trend line more than a week ago. Then it continued lower, as it fell below the level of 24,500 on Thursday. The blue-chip index accelerated its short-term downtrend on Monday. There is a potential support level at around 24,000-24,250, along with the 200-day moving average:

The S&P 500 index fell the lowest since the end of May on Monday. Then it rebounded slightly on Tuesday. Is this a new downtrend or just downward correction within the medium-term consolidation? The market may extend its decline, but there is a potential level of support of around 2,700. We may see some short-term uncertainty here. There have been no confirmed positive signals so far.

Concluding, the broad stock market will likely open lower today. Then the S&P 500 index may fluctuate along the support level of 2,700. If it breaks lower, we could see more selling pressure. For now, it looks like a downward correction within the medium-term consolidation.

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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