Briefly:
Intraday trade: Our Tuesday's intraday trading outlook was neutral. It proved wrong, because the S&P 500 gained 0.8% following higher opening of the trading session (+0.4%). The broad stock market retraced its recent decline, as it reached new record high yesterday. We still can see medium-term technical overbought conditions. However, there have been no confirmed negative signals so far. Therefore, we prefer to be out of the market again, avoiding low risk/reward ratio trades.
Medium-term trade: In our opinion, no medium-term positions are justified.
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 between 0.4% and 1.5% on Tuesday, retracing their recent move down, as investors' sentiment much improved at the beginning of the new year. The S&P 500 index has reached new all-time high of 2,695.89, slightly above its December 18 high. The Dow Jones Industrial Average gained 0.4%, as it was relatively weaker than the broad stock market yesterday. The technology Nasdaq Composite rallied 1.5%. It reached new record high above 7,000 mark. The nearest important level of support of the S&P 500 index is now at around 2,680-2,685, marked by short-term local low. The next support level remains at around 2,670-2,675, marked by Friday's local low. On the other hand, resistance level is also at 2,695-2,700, marked by new all-time high. 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
Expectations before the opening of today's trading session are positive, with index futures currently up 0.2% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements: ISM Manufacturing PMI, Construction Spending at 10:00 a.m., the FOMC Minutes release at 2:00 p.m. The market expects that ISM Manufacturing number was at 58.1 in December. The S&P 500 futures contract trades within an intraday uptrend, as it slightly extends its yesterday's advance. The nearest important resistance level is at around 2,700. On the other hand, support level is at 2,685-2,690, marked by previous resistance level. The support level is also at 2,670-2,675, marked by short-term local lows. The futures contract trades closer to 2,700 mark, as we can see on the 15-minute chart:
Nasdaq Relatively Stronger
The technology Nasdaq 100 futures contract follows a similar path, as it continues its yesterday's move up. The market trades closer to December record high. The nearest important level of resistance is at around 6,550. On the other hand, support level is at 6,480-6,500, marked by previous resistance level. The Nasdaq 100 futures contract slightly extends its yesterday's rally, 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 two weeks ago, as it broke above $175 mark. It failed to continue that rally and fluctuated along the level of $175. Then, the stock fell to support level of around $170 again, marked by the early November daily gap up. It bounced off the support level yesterday. Will Apple stock price continue higher?
The Dow Jones Industrial Average daily chart shows that blue-chip index continues to fluctuate following the early December move up. 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. The index broke below its two-month-long rising wedge pattern on Friday:
Concluding, the S&P 500 index gained 0.8% on Tuesday, as it retraced its recent decline. The broad stock market has reached new record high of 2,695.89, slightly above its December 18 high of 2,694.97. Will uptrend continue? Or is this some topping pattern ahead of 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:
No intraday position is justified from the risk/reward perspective today.
No medium-term position is justified from the risk/reward perspective at this moment.
Thank you.
Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts
