S&P500: Downtrend Continues, As US-China Trade War Escalates

Stocks extended their short-term downtrend on Wednesday, as investors’ sentiment worsened following the trade war fears again. The S&P500 index fell below its mid-May local low after breaking below the 2,800 mark. Will the downtrend continue?

The U.S. stock market indexes lost 0.7-0.9% on Wednesday, as investors’ sentiment worsened following more trade war jitters. The S&P500 index fell the lowest since the early March after breaking below the 2,800 mark. It currently trades 5.8% below its May the 1st record high of 2,954.13. The DJIA lost 0.9% and the Nasdaq Composite lost 0.8% yesterday.

The nearest important resistance level of the S&P 500 index is now at around 2,795-2,800, marked by yesterday’s daily gap down of 2,792.03-2,801.58. The next resistance level is at 2,835-2,850, marked by last Thursday’s daily gap down of 2,836.70-2,851.11. On the other hand, the support level is at 2,765-2,770, marked by yesterday’s local low. The support level is also at 2,750.

The broad stock market broke above the last year’s high in the early May. But then the index retraced all of the April’s advance. The market also broke below its two-month-long upward trend line. The index fell below the 2,800 mark recently and it extended its month-long decline, as we can see on the daily chart:

Short-Term Upward Correction

Expectations before the opening of today's trading session are slightly positive, because the index futures contracts trade 0.2-0.3% above their Wednesday’s closing prices. The European stock market indexes have gained 0.3-0.5% so far. Investors will wait for some important economic data announcements today: Preliminary GDP number, Goods Trade Balance, Wholesale Inventories, Unemployment Claims at 8:30 a.m., Pending Home Sales at 10:00 a.m., Crude Oil Inventories at 10:30 a.m.

The broad stock market will likely retrace some of its recent sell-off. The index may come back to the resistance level of 2,800. However, there have been no confirmed positive signals so far.

The S&P 500 futures contract trades within an intraday consolidation following an overnight advance. The nearest important resistance level is now at 2,795-2,800, and the support level is at around 2,775-2,780. The futures contract remains below its previous local low, as the 15-minute chat shows:

Nasdaq Also Slightly Higher

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market extended its downtrend yesterday and it broke slightly below the 7,200 mark, before bouncing off that support level. The nearest important resistance level is now at 2,750-2,300. On the other hand, the support level is at 7,180-7,200. The Nasdaq futures contract trades above its yesterday’s intraday downward trend line, as we can see on the 15-minute chart:

Apple at New Low, Microsoft Still Going Sideways

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 the 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 Closer to 25,000

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. Yesterday the blue-chip stocks’ gauge followed the broad stock market, as it accelerated the downtrend. The market broke below its important 200-day moving average:

Nikkei Below 21,000 Mark Again

Let's take a look at the Japanese Nikkei 225 Index. It accelerated the downtrend in late December, as it fell slightly below the 19,000 level. Then it was retracing the downtrend for several months. In the early May the market broke below its three-month-long upward trend line and since then it is trading within a consolidation:

The S&P 500 index extended its short-term downtrend yesterday, as it fell below the 2,800 mark. It was the lowest since the early March. So will the decline continue? For now, it looks like a medium-term downward reversal. However, if the index breaks above the resistance level of around 2,830-2,840 again, we could see more buying pressure.

Concluding, the S&P 500 index will likely open slightly higher today. We may see an upward correction in the near term. Investors will await series of economic data announcements this morning.

Paul Rejczak

Stock Trading Strategist

Sunshine Profits - Effective Investments through Diligence and Care

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