Briefly:

Intraday trade: Our Thursday's intraday trading outlook was bearish. It proved accurate because the S&P 500 lost 0.4% following higher opening of the trading session. However, the price didn't reached our yesterday's profit target level of 2,640 (daily low at 2,652.01).  We still can see technical overbought conditions. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,670 and potential profit target is at 2,630 (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 lost 0.3-0.4% on Thursday, retracing some of their recent move up, as investors took short-term profits off the table. The S&P 500 index got closer to the level of 2,650. It currently trades 0.7% below Wednesday's new record high of 2,671.88. The Dow Jones Industrial Average reached new all-time high of 24,672.48, before closing 0.3% lower, and the technology Nasdaq Composite lost 0.3%, remaining below its late November record high. The nearest important level of support of the S&P 500 index is at 2,650, marked by recent local low. The next level of support is at 2,640, marked by last Friday's daily gap up of 2,640.99-2,644.10. On the other hand, resistance level is at around 2,670-2,675, marked by new all-time high. Will the S&P 500 index continue its uptrend? Or is this some topping pattern before medium-term downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Positive Expectations, Reversal Or Just Bounce?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2-0.3% vs. their Thursday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements: Empire State Manufacturing Index at 8:30 a.m., Industrial Production, Capacity Utilization at 9:15 a.m. The market expects that Industrial Production grew 0.3% in November. The S&P 500 futures contract trades within an intraday consolidation following overnight move up. The nearest important support level is at around 2,650, marked by local low. On the other hand, level of resistance is at 2,665-2,675, marked by recent fluctuations along new record high. The futures contract trades below its short-term upward trend line, as the 15-minute chart shows:

Nasdaq Closer To Record High

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its yesterday's move down. The market remains relatively close to new record high. The nearest important support level is at 6,400-6,410, marked by short-term local low. On the other hand, resistance level is at around 6,440, marked by all-time high. The Nasdaq 100 futures contract trades within a consolidation above 6,400 mark, as we can see on the 15-minute chart:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) again. The price reached new record high a month ago, as it extended its uptrend following better-than-expected quarterly earnings release. Since then it fluctuated along the level of $170. The price bounced off support level of the early November daily gap up recently. Is this a month-long topping pattern or just consolidation before another leg up?

The Dow Jones Industrial Average daily chart shows that blue-chip index retraced some of its recent move up yesterday, after reaching new intraday record high. 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. We also see potential bearish engulfing within a two-month-long rising wedge pattern:

Concluding, the S&P 500 index lost 0.4% on Thursday, as investors took short-term profits off the table. The broad stock market retraced this week's advance yesterday. Is this a new downtrend or just some quick 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.

Currently, we prefer to be out of the market, avoiding low risk/reward ratio medium-term trades. We will let you know when we think it is safe to get back in the market.

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

Intraday trade:

S&P 500 index - short position: profit target level: 2,630; stop-loss level: 2,670,
S&P 500 futures contract (September) - short position: profit target level: 2,635; stop-loss level: 2,675
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $262.0; stop-loss level: $266.0

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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