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S&P 500 Sets Another Record, But This May Be Short-Term Top

January 9, 2018, 7:31 AM Paul Rejczak

Briefly:

Intraday trade: Our Monday's intraday trading outlook was bearish. It proved partly wrong, because the S&P 500 gained just 0.2% following slightly lower opening of the trading session. The broad stock market continued its short-term uptrend, but it remained within a relatively narrow trading range. There have been no confirmed negative signals so far. However, we can see some clear short-term overbought conditions along with an overly bullish investors' sentiment. Therefore, intraday short position is favored today. Stop-loss is at the level of 2,765 and potential profit target is at 2,710 (S&P 500 index).

Our intraday outlook is bearish today. Our short-term outlook is neutral, and our medium-term outlook is neutral:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral

The main U.S. stock market indexes were mixed between -0.05% and +0.3% on Monday, as investors took some short-term profits off the table following recent rally. The S&P 500 index has reached yet another new all-time high at the level of 2,748.51. The broad stock market continues its nine-year-long bull market. The Dow Jones Industrial Average lost 0.05%, as it was relatively weaker than the broad stock market yesterday. The blue-chip index reached new record high at 25,311.99 before closing below its Friday's trading session close. The technology Nasdaq Composite extended its rally, as it gained 0.3%. It reached new record high above the level of 7,100. The nearest important level of support of the S&P 500 index is at around 2,730, marked by Friday's daily low. The next support level is at 2,715-2,720, marked by Thursday's daily gap up of 2,714.37-2,719.07. The support level is also at 2,695-2,700, marked by recent consolidation. On the other hand, potential resistance level is at 2,750. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Daily S&P 500 index chart - SPX, Large Cap Index

Flat Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently up 0.1% vs. their Monday's closing prices. The European stock market indexes have gained 0.1-0.5% so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday uptrend, as it retraces its yesterday's intraday move down. The nearest important level of support is at around 2,735-2,740, marked by some short-term local lows. The next support level is at 2,720-2,730, marked by recent fluctuations. On the other hand, potential resistance level is at 2,750. The futures contract fluctuates along its new record high, as we can see on the 15-minute chart:

S&P 500 futures contract - S&P 500 index chart - SPX

Nasdaq At New Record High

The technology Nasdaq 100 futures contract extends its uptrend, as it reaches new record highs and gets close to 6,700 mark. The nearest important level of support is at around 6,680, marked by local lows. The next support level is at 6,650, among others. The Nasdaq 100 futures contract remains slightly above its short-term upward trend line, as the 15-minute chart shows:

Nasdaq100 futures contract - Nasdaq 100 index chart - NDX

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The price reached new record high over two weeks ago, as it broke above $175 mark. It failed to continue that rally and fluctuated along the level of $175. Then, the stock fell to support level of around $170 again, marked by the early November daily gap up. It bounced off the support level last week. The price is close to resistance level again, but will it break above record high?

Daily Apple, Inc. chart - AAPL

The Dow Jones Industrial Average daily chart shows that blue-chip index broke above its short-term consolidation last Wednesday, and it reached new record highs on Thursday, Friday and on Monday. We still can see negative technical divergences. The most common divergences are between asset’s price and some indicator based on it (for instance the index and RSI based on the index). In this case, the divergence occurs when price forms a higher high and the indicator forms a lower high. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. The index trades within a two-month-long rising wedge pattern. Is this an euphoria medium-term topping pattern?

Daily DJIA index chart - DJIA, Blue-Chip Index

Concluding, the S&P 500 index gained 0.2% on Monday, as it further extended its record-setting rally. The broad stock market gauge trades closer to 2,750 mark. Will uptrend continue despite some clear short-term overbought conditions? Or is this some topping pattern ahead of downward correction? We still can see medium-term overbought conditions along with negative technical divergences. However, there have been no confirmed negative signals so far.

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Thank you.

Paul Rejczak
Stock Trading Strategist
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In this edition of the Market Overview, we will examine what the Great Unwind implies for the U.S. dollar and gold. The tightening of monetary policy and higher interest rates could be negative for gold, but more hawkish BoJ and ECB would mean narrower divergence in monetary policies between the Fed and other major central banks.
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