Briefly:
Intraday trade: Our Friday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.3% following slightly higher opening of the trading session. We still can see some short-term overbought conditions. Therefore, intraday short position is favored. 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 main U.S. stock market indexes gained between 0.1% and 0.7% on Friday, as investors reacted to monthly jobs data, quarterly earnings releases. The S&P 500 index has reached new record high of 2,588.42, just 0.02 of a point above its Wednesday's daily high. The Dow Jones Industrial Average was relatively weaker than the broad stock market again, as it gained just 0.1%. However, the blue-chip index reached new record high at the level of 23,557.06. The technology Nasdaq Composite extended its uptrend, as it reached new record high at 6,765.14, following better-than-expected quarterly earnings release from Apple. The nearest important level of support of the S&P 500 index is at around 2,575, marked by recent fluctuations. The next support level is at 2,565-2,570, marked by some previous local lows. The next support level is also at 2,560. On the other hand, potential resistance level is at around 2,590-2,600, 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:
Flat Expectations
Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.05% and +0.1% vs. their Friday's closing prices. The European stock market indexes have been mixed so far. There will be no new important economic data announcements today. However, investors will wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday uptrend following an overnight decline. The nearest important level of support is at around 2,570-2,575, marked by short-term local lows. The next support level is at 2,560-2,565. On the other hand, resistance level is at around 2,585, marked by record high. The futures contract trades close to its new record high, just before last Wednesday's daily high, as we can see on the 15-minute chart:
Nasdaq Relatively Stronger Again
The technology Nasdaq 100 futures contract trades close to its new all-time high, as investors' sentiment remains bullish following recent quarterly earnings releases. The nearest important level of resistance is at around 6,300, marked by record high. On the other hand, support level is at 6,230-6.250, among others. The Nasdaq 100 futures contract remains above its two-day=long 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 reached new record high on Friday, following Thursday's 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 extended its long-term uptrend on Friday, as it broke above 23,500 mark. Will the uptrend accelerate again? Or is this some topping pattern before downward correction?
Concluding, the S&P 500 index broke slightly above its Wednesday's new record high on Friday, as investors' sentiment improved following Apple's quarterly earnings, monthly jobs data release. Is this a topping pattern before some downward reversal or just consolidation within an uptrend? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions along with negative technical divergences.
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Thank you.
Paul Rejczak
Stock Trading Strategist
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