Briefly:
Intraday trade: Our Wednesday's intraday trading outlook was bearish. It proved partly wrong because the S&P 500 index gained 0.15% (neutral), following slightly lower opening of the trading session. We still can see some technical overbought conditions along with negative divergences. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,605 and potential profit target is at 2,555 (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 U.S. stock market indexes were mixed between 0.0% and +0.3% on Wednesday, as investors' sentiment remained bullish following economic data, quarterly earnings releases. The S&P 500 index traded slightly below its Tuesday's new record high of 2,597.02. The Dow Jones Industrial Average was unchanged, as it extended its week-long fluctuations along the level of 23,500-23,600. It has reached new all-time high of 23,602.12 on Tuesday. The technology Nasdaq Composite remained close to Tuesday's new record high of 6,795.52, as it gained 0.3% following last week's better-than-expected quarterly earnings releases. The nearest important level of support of the S&P 500 index is at 2,585, marked by short-term local lows. The next support level remains at around 2,575, marked by recent fluctuations. The support level is also at 2,565-2,570, marked by some previous local lows. On the other hand, potential resistance level is still at around 2,600, marked by record high. The S&P 500 index extended its over eight-year-long bull market recently, as it reached new record high closer to 2,600 mark. Will bull market continue? Or is this some topping pattern ahead of downward reversal? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions:
Negative Expectations
Expectations before the opening of today's trading session are negative, with index futures currently between -0.4% and -0.3% vs. their yesterday's closing prices. The European stock market indexes have lost 0.4-0.9% so far. Investors will wait for some economic data announcements: Initial Claims at 8:30 a.m., Wholesale Inventories number at 10:00 a.m. The market expects that the Initial Claims number was at 232,000 last week. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation following an overnight move down off new record high. The nearest important level of support remains at around 2,580, marked by local lows. The next support level is at 2,570-2,575, marked by previous short-term local lows. On the other hand, resistance level is at around 2,590-2,595, marked by new record highs. The futures contract trades within a three-day-long consolidation following breakdown below its short-term upward trend line, as we can see on the 15-minute chart:
Reversal From New Record High
The technology Nasdaq 100 futures contract follows a similar path, as it retraces its overnight record-breaking advance. The nearest important level of resistance is at around 6,350, marked by new all-time high. On the other hand, support level is at 6,300-6,330, marked by recent consolidation. The Nasdaq 100 futures contract trades slightly below its short-term upward trend line, as the 15-minute chart shows:
Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). The price has reached yet another new record high yesterday. It extended its last week's rally following better-than-expected quarterly earnings release. Will the uptrend continue despite some clear technical overbought conditions? We can say that something (i.e. individual asset, entire market, technical indicator) is overbought when its value rises so high that (according to the technical analysis) it’s unlikely to advance even further. Generally, an overbought market is a sign that a downward correction is likely to occur. Traders use indicators such as Relative Strength Index (RSI), Stochastic Oscillator, Money Flow Index to identify overbought conditions. For example, one can view a given market as “overbought” if the RSI indicator for this market is above 70.
The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index fluctuates within a short-term consolidation along new record high. Is this a topping pattern? The market remains above its over two-month-long upward trend line. We still can see some short-term negative technical divergences:
Concluding, the S&P 500 index remained slightly below Tuesday's new record high of 2,597.02 yesterday. The market has extended its relatively narrow short-term trading range. Is this a topping pattern before some downward reversal? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions along with negative technical divergences. Will the broad stock market index continue higher despite those negative signals?
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Thank you.
Paul Rejczak
Stock Trading Strategist
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