Downward pressure mounting
Stocks extended their short-term losses on Wednesday, as they retraced most of last week's Friday's rally. The broad stock market failed to continue its rebound from February 9 low despite technology stocks reaching new record highs. Investors' sentiment worsened again following economic news, trade war fears. There are still two possible future scenarios. Or maybe three, but the third one is the worst.
The main U.S. stock market indexes extended their Tuesday's losses, as they closed 0.2-1.0% lower yesterday. The S&P 500 index lost 0.6% following Tuesday's bounce off resistance level at 2,800. However, it remained at the support level of last Friday's daily gap up. It currently trades 4.6% below January 26 record high of 2,872.87. The Dow Jones Industrial Average was relatively weaker than the broad stock market, as it lost 1.0% and the technology Nasdaq Composite lost just 0.2%.
The nearest important level of resistance of the S&P 500 index is now at around 2,775-2,780, marked by yesterday's daily high. The next resistance level is at 2,790-2,800, marked by short-term local highs. On the other hand, support level is at 2,740-2,750, marked by Friday's daily gap up of 2,740.45-2,751.54. The next level of support is at 2,700-2,720, among others.
The S&P 500 index reached its record high 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 January euphoria rally.
Then 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? The market seems to be in the middle of two possible future scenarios. The bearish case leads us to February low or lower after breaking below medium-term upward trend line, and the bullish one means potential double top pattern or breakout above the late January high. However, the most likely scenario may be that stocks go sideways for a while, and it would be the worst future scenario:
Uncertainty Following Move Down
The index futures contracts trade 0.1% higher vs. 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 0.2-0.3% so far. Investors will wait for some economic data announcements: Empire State Manufacturing Index, Philly Fed Manufacturing Index, Initial Claims at 8:30 a.m., NAHB Housing Market Index at 10:00 a.m. Will yesterday's move down continue? The S&P 500 index reached its Friday's daily gap up, which may act as a short-term support level. If the market breaks lower, it could continue towards the level of 2,700. But for now, it looks like a downward correction. So, we will likely see more fluctuations above support level of 2,750, and below resistance level of 2,800.
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 2,745-2,750, marked by local low, among others. On the other hand, resistance level is at 2,775-2,785, marked by yesterday's local high. The futures contract is below its short-term downward trend line, as we can see on the 15-minute chart: