Briefly:
Intraday trade: Our Wednesday's intraday trading outlook was neutral. It proved accurate because the S&P 500 index lost 0.1%, following neutral opening of the trading session. The market broke above its short-term consolidation last week. We still can see negative technical divergences along with medium-term overbought conditions. However, 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.
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 0.1-0.3% on Friday, slightly extending their recent uptrend, as investors' sentiment remained bullish following quarterly earnings, economic data releases. The S&P 500 index has reached new all-time high at the level of 2,604.21. The Dow Jones Industrial Average was relatively weaker, as it remained below Tuesday's record high of 23,617.80. The technology Nasdaq Composite was relatively stronger than the broad stock market, as it gained 0.3% on Friday. It reached new record high of 6,890.02. The nearest important level of support of the S&P 500 index is at around 2,590, marked by last Tuesday's daily gap up of 2,584.64-2,589.17. The next support level is at 2,570-2,575, marked by short-term local lows. The level of support is also at 2,555-2,560. The S&P 500 index broke slightly above 2,600 mark on Friday. But will it continue higher? 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:
At New Record High
Expectations before the opening of today's trading session are slightly positive, with index futures currently up 0.1% vs. their Friday's closing prices. The European stock market indexes have gained 0.2-0.3% so far. Investors will wait for the New Home Sales number release at 10:00 a.m. The market expects that it was at 627,000 in October. The S&P 500 futures contract trades within an intraday uptrend, as it retraces its overnight move down. The nearest important level of support is at around 2,595, marked by short-term local lows. The next level of support remains at 2,585-2,590, among others. On the other hand, level of resistance is at around 2,600-2,605. The futures contract trades above its short-term upward trend line, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. The market retraces its overnight decline. The nearest important level of support is at 6,400, marked by previous resistance level. On the other hand, potential resistance level is at 6,420, marked by new record high. The Nasdaq 100 futures contract reaches new record high, 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 on November 8, as it extended its uptrend following better-than-expected quarterly earnings release. Then it remained within a short-term correction. The price bounced off support level at around $170 and retraced most of its downward correction recently. However, it still continues to trade slightly below its all-time high. Will it continue higher despite some negative technical divergences?
The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index retraced its early November downward correction and reached new record high last week. We can see some expanding triangle structure. Is this a topping pattern? 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:
Concluding, the S&P 500 index gained 0.2% on Friday and it reached new record high, as it extended its Tuesday's move up. The broad stock market trades slightly above its month-long consolidation. Is this a medium-term topping pattern or just another flat correction of a bull market? 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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