Briefly:

Intraday trade: Our Monday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.1% (neutral), following neutral opening of the trading session. The market remained within a short-term consolidation. We still can see negative technical divergences along with medium-term overbought conditions. However, expectations before the opening of today's trading session are positive following global stock markets move up. Therefore, we prefer to be out of the market today, 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 0.1-0.3% on Monday, retracing their Friday's move down, as investors' sentiment slightly improved. The S&P 500 index trades around 0.6% below its November 7 record high of 2,597.02. It continues to fluctuate within a month-long consolidation following September-November rally. The Dow Jones Industrial Average gained 0.3%, as it was relatively stronger than the broad stock market yesterday. The technology Nasdaq Composite gained just 0.1%. It remained close to last week's new record high of 6,806.68. The nearest important level of resistance of the S&P 500 index remains 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 lows. The S&P 500 index extends its 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:

Closer To Record High

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2-0.3% vs. their Monday's closing prices. The European stock market indexes have gained 0.3-0.5% so far. Investors will wait for the Existing Home Sales number release at 10:00 a.m. The market expects that it was at 5,42M in October. The S&P 500 futures contract trades within an intraday uptrend, following overnight consolidation. The nearest important level of support is at around 2,575-2,580, marked by short-term fluctuations. On the other hand, resistance level is at 2,590-2,595, marked by record high. The futures contract trades closer to its all-time high, as we can see on the 15-minute chart:

Nasdaq Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. The nearest important level of resistance is at 6,340-6,360, marked by recent local highs. On the other hand, support level is at 6,300-6,320, marked by overnight fluctuations, among others. The Nasdaq 100 futures contract gets closer to last week's local highs, 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 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. Will it bounce off that support level?

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index extends its fluctuations following the early November 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 gained just 0.1% on Monday, as it extended its short-term fluctuations following last week's bounce off support level. 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.

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.

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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