Briefly:

Intraday trade: Our yesterday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.2% vs. Monday's closing price. However, the index continued to trade within relatively narrow intraday trading range. The market may retrace some of its recent rally today, as investors continue taking short-term profits off the table. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,565 and potential profit target is at 2,530 (S&P 500 index).

Medium-term trade: In our opinion, no medium-term positions are justified.

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 U.S. stock market indexes gained between 0.1% and 0.3% on Tuesday, extending their short-term fluctuations along new record highs, as investors' sentiment remained bullish. The S&P 500 index has reached new all-time high at the level of 2,555.23, before retracing some of this move up and going below 2,550 mark. The broad stock market extends its short-term consolidation, as investors take some profits off the table following recent rally. The Dow Jones Industrial Average reached new record high at the level of 22,850.51 yesterday, as it gained 0.3%. The technology Nasdaq Composite has also reached new record high, at the level of 6,608.30. The nearest important level of support of the S&P 500 index is still at around 2,540, marked by recent fluctuations. The next support level is at 2,520-2,530, marked by last week's Tuesday's daily gap up of 2,519.44-2,520.40 and short-term local lows. The support level is also at 2,500-2,510, marked by previous level of resistance and local highs. On the other hand, resistance level is at 2,550-2,555, marked by the above-mentioned new all-time high. The S&P 500 index accelerated its uptrend recently. We still can see medium-term negative technical divergences along with technical overbought conditions. However, there have been no confirmed negative signals so far:

Flat Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently down 0.05% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: JOLTS Job Openings number at 10:00 a.m., the FOMC Minutes release at 2:00 p.m. The S&P 500 futures contract trades within an intraday consolidation, as it extends its recent fluctuations along new record high. The nearest important resistance level is at around 2,550-2,555, marked by record high. On the other hand, level of support is at 2,535-2,540, marked by previous resistance level and some local lows. The next support level is at 2,530, marked by short-term consolidation. The support level is also at 2,520-2,525, marked by local lows. The futures contract trades within a short-term consolidation along new record highs, as we can see on the 15-minute chart:

Nasdaq Close To Record High

The technology Nasdaq 100 futures contract continues to trade close to its new record high, as investors' sentiment remains bullish. The nearest important level of resistance is at around 6,080-6,100. On the other hand, support level is at around 6,040-6,050, marked by short-term local lows. The next support level remains at 6,000-6,020, marked by previous level of resistance. The Nasdaq 100 futures contract remains above support level of 6,050 following breakout below its recent rising wedge pattern, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It remains relatively weaker than record-breaking broad stock market indexes. The stock price bounced off support level at around $150 at the end of September. It retraces some of its early September decline. Is this a new uptrend or just upward correction? We can see some potential negative rising wedge - bear flag pattern:

Now, let's take a look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com). The blue-chip index reached new record highs, as it got closer to 23,000 mark. There have been no confirmed negative signals so far. However, we still can see some negative technical divergences. The price continues higher, while technical indicator like RSI (Relative Strength Index) forms a lower high or remains at the same level. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. Bearish divergence is a moderately useful tool for detecting a coming reversal in the bullish trend, therefore it needs a confirmation. We can see relatively steep month-long upward trading channel or a negative rising wedge pattern. Is this a topping pattern?

Concluding, the S&P 500 index fluctuated along its new record high on Tuesday, as investors' sentiment remained bullish. Will uptrend continue? Or is this some topping pattern before downward correction? There have been no confirmed negative signals so far. However, we can see technical overbought conditions, along with very bullish investors' sentiment. The broad stock market may retrace some of its recent advance at some point.

Our medium-term short position (opened on June 5 at 2,437.83 - opening price of the S&P 500 index) has been closed on Tuesday, October 3, at the stop-loss level of 2,530 - S&P 500 index. We lost 92.17 index points or 3.8% on that trade, betting against long-term uptrend. Overall, this four-month-long medium-term bearish position proved wrong. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow. Currently, 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.

To summarize: no intraday or medium-term positions are justified from the risk/reward perspective at this moment.

Intraday trade:

S&P 500 index - short position: profit target level: 2,530; stop-loss level: 2,565,
S&P 500 futures contract (September) - short position: profit target level: 2,527; stop-loss level: 2,562
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $253; stop-loss level: $256.5

Medium-term trade:

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
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