Briefly:
Intraday trade: Our yesterday's intraday trading outlook was neutral. It proved correct because the S&P 500 index gained just 0.1% following slightly lower opening of the trading session. The index may retrace some of its recent rally today after neutral of the trading session. There have been no confirmed negative signals so far. Therefore, we prefer to be out of the market today, avoiding low risk/reward ratio trades.
Medium-term trade: In our opinion, no medium-term positions are justified.
Our intraday outlook is neutral today. Our short-term outlook is neutral, and our medium-term outlook is neutral:
Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): neutral
The main U.S. stock market indexes gained 0.1% on Wednesday, slightly extending their uptrend, as investors' sentiment remained bullish. The S&P 500 index has reached new record high at the level of 2,540.53. The Dow Jones Industrial Average reached new record high at the level of 22,685.94, and the technology Nasdaq Composite reached new all-time high at the level of 6,546.46. The nearest important level of resistance of the S&P 500 index is at around 2,540-2,550. On the other hand, the nearest important level of support is at around 2,520, marked by Tuesday's daily gap up of 2,519.44-2,520.40. The next support level is at 2,510, marked by previous level of resistance and local highs. The support level is also at 2,490, marked by the September 12 daily gap up of 2,488.95-2,490.37, among others. The S&P 500 index accelerated its uptrend recently. We still can see medium-term negative technical divergences, but will they lead to a downward correction?
Short-Term Fluctuations Ahead?
Expectations before the opening of today's trading session are virtually flat, with index futures currently between 0.0% and +0.05% vs. their Wednesday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Initial Claims, Trade Balance at 8:30 a.m., Factory orders number at 10:00 a.m. The market expects that the Initial Claims were at 266,000 last week, and Factory Orders grew 1.0% in August. Investors will also wait for some quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation following another daily advance. The nearest important level of resistance is at around 2,535-2,540, marked by new all-time high. On the other hand, support level is at 2,530, marked by short-term consolidation. The next support level remains at 2,520-2,525, marked by recent local lows. The support level is also at around 2,500-2,510. The futures contract trades along its new record highs, as we can see on the 15-minute chart:
Nasdaq Goes Sideways
The technology Nasdaq 100 futures contract trades within an intraday consolidation following yesterday's advance. The tech sector remains relatively weaker than the broad stock market, as it is still below previous highs (Nasdaq 100). The nearest important resistance level is at around 6,000-6,020, marked by record high. On the other hand, support level is at 5,930-5,950, marked by previous level of resistance. The Nasdaq 100 futures contract is now below its short-term upward trend line, as the 15-minute chart shows:
Let's take another look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It remains relatively weaker than the record-breaking broad stock market gauges. The price bounced off support level at around $150 a week ago. Is this a new uptrend? Or just upward correction before another leg lower? There have been no confirmed positive signals so far. The price trades slightly below short-term resistance level of $155, marked by some previous local lows:
Now, let's take look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) again. The blue-chip index broke above its recent local high, as it reached new record highs. There have been no confirmed negative signals so far. However, we still can see some negative technical divergences. The price continues higher, while the technical indicator like RSI (Relative Strength Index) or MACD (Moving Average Convergence/Divergence) forms a lower high. 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 some negative rising wedge pattern. Is this a topping pattern?
Concluding, the S&P 500 index reached another new record high yesterday. as it gained 0.1% vs. Tuesday's closing price. Will uptrend continue even further? There have been no confirmed negative signals so far. However, we can see technical overbought conditions and negative divergences. 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:
No intraday position is justified from the risk/reward perspective today.
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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