Briefly:
Intraday trade: Our Friday's intraday trading outlook was neutral. It proved partly wrong because the S&P 500 index lost 0.3%, following slightly lower opening of the trading session. The market retraced some of its Thursday's move up on Friday. We still can see negative technical divergences along with medium-term overbought conditions. Therefore, intraday short position is favored. Stop-loss is at the level of 2,600 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 lost between 0.2% and 0.4% on Friday, retracing some of their Thursday's advance, as investors' took short-term profits off the table. The S&P 500 index trades around 0.7% below its November 7 record high of 2,597.02. It remains within a month-long consolidation following September-November rally. The Dow Jones Industrial Average lost 0.4%, as it was relatively weaker than the broad stock market on Friday. The technology Nasdaq Composite lost 0.2%, slightly retracing its rally to new record high of 6,806.68. The nearest important level of resistance of the S&P 500 index is now at 2,590, marked by Thursday's local high. The resistance level is also at 2,595-2,600, marked by the all-time high. On the other hand, support level is at around 2,570-2,575, marked by short-term local lows.The next level of support is at 2,555-2,560, marked by last week's local lows. The S&P 500 index extends its almost month-long fluctuations along new record high. Is this some topping pattern before medium-term downward correction or just consolidation before another leg up? There have been no confirmed negative signals so far. However, we can see medium-term technical overbought conditions along with negative technical divergences:
Flat Expectations Again
Expectations before the opening of today's trading session are virtually flat, with index futures currently between 0.0% and +0.05% vs. their Friday's closing prices. The European stock market indexes have gained 0.2-0.3% so far. Investors will wait for the Conference Board Leading Indicators number release at 10:00 a.m. The market expects that it grew 0.6% in October. The S&P 500 futures contract trades within an intraday uptrend, following overnight move down. The nearest important level of support is at around 2,565-2,570, marked by local low. On the other hand, resistance level is at around 2,585-2,590, marked by recent local highs. The futures contract trades below its short-term downward trend line, as we can see on the 15-minute chart:
Nasdaq Also Sideways
The technology Nasdaq 100 futures contract follows a similar path, as it retraces its overnight decline. The nearest important level of resistance is at 6,330-6,360, marked by recent local highs. On the other hand, support level is at 6,290-6,300, marked by overnight lows. The Nasdaq 100 futures contract trades along its recent fluctuations, as the 15-minute chart shows:
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. Since then, Apple stock remained within a short-term downtrend. The price bounced off support level at around $170 recently. It trades at the early November daily gap up support level:
The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index extends its short-term fluctuations following breakout below upward trend line. We still can see some 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 retraced some of its Thursday's rally on Friday. The broad stock market trades within month-long consolidation following September-November rally. 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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