Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.2% (neutral), following slightly higher opening of the trading session. The market may retrace more of its recent rally. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,585 and potential profit target is at 2,535 (S&P 500 index).

Medium-term trade: In our opinion, no medium-term positions are justified.

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 gained between 0.2% and 0.7% on Tuesday, retracing some of their Monday's move down, as investors' sentiment improved. The S&P 500 index trades around 0.4% below its Monday's new record high of 2,578.29. The Dow Jones Industrial Average reached new all-time high at the level of 23,485.25, following better-than-expected quarterly earnings releases. The technology Nasdaq Composite gained 0.2%, and it traded around 0.6% below its Monday's all-time high of 6,641.57. The nearest important level of support of the S&P 500 index is at 2,565, marked by Friday's daily gap up of 2,562.36-2,567.56. The next support level remains at 2,550, marked by previous level of resistance, among others. The support level is also at 2,540, marked by recent fluctuations. On the other hand, potential resistance level is at around 2,580-2,600. The S&P 500 index fluctuates following its recent run-up. Is this a topping pattern or just consolidation before another leg up? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions:

Short-Term Consolidation

Expectations before the opening of today's trading session are mixed, with index futures currently between -0.1% and +0.1% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Durable Goods Orders number at 8:30 a.m., New Home Sales at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that Durable Goods Orders grew 1.0%, and New Home Sales were at 555,000 in September. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation, as it extends its recent fluctuations along the level of 2,565. It retraced some of its recent rally, following bounce off resistance level at 2,570-2,575. The nearest important support level is now at around 2,560, marked by local lows. The next level of support is at 2,540-2,550. The futures contract remains within a relatively narrow trading range following its Monday's decline, as we can see on the 15-minute chart:

Nasdaq Still Weaker

The technology Nasdaq 100 futures contract follows a similar path, as it trades within a short-term consolidation. The nearest important level of resistance is at around 6,080-6,100, and the next resistance level is at 6,120-6,130, marked by record high. On the other hand, support level is at around 6,050-6,070, marked by local lows. The next level of support is at 5,980-6,000. The Nasdaq 100 futures contract trades along 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). It broke below its short-term upward trend line last week, after reaching resistance level of $160. Since then it fluctuates within a short-term consolidation along the price of $156. Is this a new downtrend or just downward correction following recent advance?

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index continues to accelerate its long-term uptrend. We can see some clear technical overbought conditions. Is this a medium-term blow-off top pattern?

Concluding, the S&P 500 index gained 0.2% on Tuesday, as it extended its fluctuations following Monday's move down off new record high. Investors will wait for more quarterly corporate earnings releases. Will they drive stock prices even higher? Will the broad stock market follow blue-chip stocks (DJIA index) euphoria-rally? Or is this some topping pattern before downward correction?

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:

S&P 500 index - short position: profit target level: 2,535; stop-loss level: 2,585,
S&P 500 futures contract (September) - short position: profit target level: 2,532; stop-loss level: 2,582
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $253.5; stop-loss level: $258.5

Medium-term trade:

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
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