More Short-Term Uncertainty As Stocks Hover Along Last Year's Medium-Term Highs

May 12, 2016

Briefly: In our opinion, no speculative positions are justified.

Our intraday outlook is neutral, and our short-term outlook is neutral. Our medium-term outlook remains bearish, as the S&P500 index extends its lower highs, lower lows sequence:

Intraday outlook (next 24 hours): neutral

Short-term outlook (next 1-2 weeks): neutral

Medium-term outlook (next 1-3 months): bearish

Long-term outlook (next year): neutral

The US stock market indexes lost 0.9-1.2% on Wednesday, retracing their Tuesday's move up, as investors continued to hesitate. The S&P500 index extends its consolidation following February - April rally. The nearest important level of support is at around 2,050, and the next support level is at 2,030-2,040, marked by previous local lows. On the other hand, resistance level is at 2,080-2,085, marked by recent local highs. The next important level of resistance remains at 2,100-2,110, marked by late April highs. Last year's highs along the level of 2,100 continue to act as medium-term resistance level. Will the market break above these highs and continue its seven-year long bull market?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.5-0.6%. The European stock market indexes have gained 0.4-0.8% so far. Investors will now wait for the Initial Claims number release at 8:30 a.m. The S&P500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's decline. The nearest important level of resistance is at around 2,080. On the other hand, support level remains at 2,055-2,060, marked by recent fluctuations. For now, it looks like a downward correction within a short-term uptrend, as we can see on the 15-minute chart:

The technology Nasdaq 100 futures contract follows a similar path, as it retraces its yesterday's move down, following a rebound off support level at around 4,350. The nearest important level of resistance is at 4,400 marked by yesterday's local high, among others. The market trades within a consolidation following short-term uptrend, as the 15-minute chart shows:

Concluding, the broad stock market extended its short-term consolidation yesterday, as the S&P500 index retraced Tuesday's rally. However, there have been no confirmed negative signals so far. The index remains relatively close to last year's medium-term highs along the level of 2,100 and continues to trade above its late March - early April local lows. It still looks like a correction within a medium-term uptrend, so we prefer to be out of the market, avoiding low risk/reward ratio trades. We will let you know when we think it is safe to get back in the market.

Paul Rejczak is a stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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