Stocks set to open lower, should you buy?

March 19, 2018 08:59 AM

Stocks extended their short-term consolidation on Friday, as investors continued to hesitate following Tuesday-Wednesday move down. The broad stock market failed to continue its rebound from February 9 low last week despite technology stocks reaching new record highs. There are still two possible future scenarios. Or maybe three, but the third one is the worst.

The U.S. stock market indexes were mixed between 0.0% and +0.3% on Friday, extending their short-term consolidation, as investors were undecided after the recent move down. The S&P 500 index gained 0.2% and it remained at the support level of previous Friday's daily gap up. It currently trades 4.5% below January 26 record high of 2,872.87. The Dow Jones Industrial Average was relatively stronger than the broad stock market, as it gained 0.3%, and the technology Nasdaq Composite was unchanged.

The nearest important level of resistance of the S&P 500 index remains at around 2,775-2,780, marked by Wednesday'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 previous 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.

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 is still 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 worst future scenario for traders would be stocks going sideways:

Negative Expectations

The index futures contracts are trading 0.5-1.3% lower vs. their Friday's closing prices, so expectations before the opening of today's trading session are very negative. The main European stock market indexes have lost 0.7-1.3% so far. There will be no new important economic data announcements today. The S&P 500 index remains at its previous Friday's daily gap up, which continues to act as a short-term support level. If the market breaks lower, it could continue towards the level of 2,700.

The S&P 500 futures contract trades within an intraday downtrend, following an overnight breakdown below Friday's trading range. The nearest important level of resistance is at around 2,745-2,750, marked by previous support level. On the other hand, support level is at 2,730-2,735, marked by short-term local low. The futures contract is below its recent short-term consolidation, as we can see on the 15-minute chart:

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