Briefly:

Intraday trade: Our Monday's intraday trading outlook was bearish. It proved partly wrong because the S&P 500 index gained 0.1% (neutral) following neutral opening of the trading session. We still can see some short-term overbought conditions. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,610 and potential profit target is at 2,555 (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 were mixed between 0.0% and +0.3% on Monday, as investors' sentiment remained bullish following last week's move up. The S&P 500 index has reached new record high at the level of 2,593.38. It gained around 5 points over its Friday's record high. The Dow Jones Industrial Average was relatively weaker than the broad stock market again, as it remained unchanged. However, the blue-chip index reached new record high at the level of 23,574.86. The technology Nasdaq Composite extended its uptrend, as it reached new record high at 6,790.66, following last week's better-than-expected quarterly earnings releases. 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 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:

Mixed Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently between 0.0% and +0.1% vs. Monday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for the JOLTS Job Openings number release at 10:00 a.m. The market expects that it was at 5.98M. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation following overnight move up. The nearest important level of support is at around 2,585, marked by recent local highs. The next support level is at 2,570-2,575, marked by short-term local lows. On the other hand, resistance level is at around 2,590-2,600, marked by record high. The futures contract is currently trading at its short-term upward trend line, as we can see on the 15-minute chart:

Tech Stocks At Record Highs

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its overnight move up. The market has reached new record high above the level of 6,330. The nearest important level of resistance is at around 6,330, marked by that record high. On the other hand, support level is at 6,300, and the next support level is at 6,230-6.250, among others. The Nasdaq 100 futures contract is now slightly below its short-term upward trend line, but it remains above 6,300 mark, 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 yesterday, as it slightly extended its Friday'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 continued its uptrend yesterday, as it reached new record high, slightly above Friday's daily high. However, it closed virtually flat. Is this some topping pattern before downward correction? We can see some short-term negative technical divergences:

Concluding, the S&P 500 index reached new record high on Monday, as it slightly extended its long-term uptrend following last week's quarterly earnings, economic data releases. 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. The broad stock market index gets close to 2,600, but will it continue higher?

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: 2,555; stop-loss level: 2,610,
S&P 500 futures contract (September) - short position: profit target level: 2,552; stop-loss level: 2,607
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $255.5; stop-loss level: $261.0

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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