Briefly:

Intraday trade: Our Thursday's intraday trading outlook was neutral. It proved wrong because the S&P 500 index gained 0.8%, following higher opening of the trading session. The market broke above its short-term consolidation on Tuesday and continued its rally yesterday. We still can see negative medium-term technical divergences. There have been no confirmed negative signals so far. However, we can see some short-term technical overbought conditions. Therefore, intraday short position is favored today. Stop-loss is at the level of 2,665 and potential profit target is at 2,615 (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 0.7-1.4% on Thursday, as investors' sentiment improved following Wednesday's very mixed trading session. The S&P 500 index has reached new record high at the level of 2,657.74, before retracing some of its intraday rally. The Dow Jones Industrial Average was relatively stronger than the broad stock market, as it gained 1.4%. It reached new record high at the level of 24,327.82. The technology Nasdaq Composite was relatively weak, however, it gained 0.7%, as it retraced some of its Wednesday's move down. The nearest important level of support of the S&P 500 index is at around 2,630-2,635, marked by some short-term local highs. The next support level remains at 2,600-2,610, marked by recent level of resistance. The support level is also at at 2,590, marked by last Tuesday's daily gap up of 2,584.64-2,589.17. On the other hand, resistance level is at around 2,650-2,660, marked by new all-time high. Will the S&P 500 index continue even higher? Or is this some topping pattern before medium-term downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Negative Expectations

Expectations before the opening of today's trading session are negative, with index futures currently between -0.1% and -0.3% vs. their Thursday's closing prices. The European stock market indexes have lost 0.3-1.0% so far. Investors will wait for some economic data announcements: The ISM Manufacturing Index, Construction Spending at 10:00 a.m. The market expects that the ISM Manufacturing number was at 58.4 in November. The S&P 500 futures contract trades within an intraday downtrend, as it retraces its yesterday's advance. The market fell around 1% off its yesterday's record high. The nearest important level of support is at 2,630, marked by recent consolidation. The support level is also at 2,620, marked by some short-term fluctuations. On the other hand, level of resistance is at around 2,550-2,560. The futures contract trades slightly below its short-term upward trend line, as we can see on the 15-minute chart:

Nasdaq Still Weaker

The technology Nasdaq 100 futures contract follows a similar path, as retraces yesterday's move up. It continues to trade well below its recent all-time high. The nearest important level of resistance is at around 6,350-6,370, marked by short-term local highs. The next resistance level is at 6,400, marked by previous support level. On the other hand, support level is now at 6,280-6,300, among others. The Nasdaq 100 futures contract fluctuates following Wednesday's move down, 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 it fluctuates below the record high. Is this a topping pattern or just consolidation before another leg up? The price bounced off support level, marked by the early November daily gap up:

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index broke above its recent consolidation and reached new record highs above 24,000 mark. 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:

Concluding, the S&P 500 index gained 0.8% on Thursday, as investors' sentiment improved following Wednesday's fluctuations. The broad stock market continues its short-term uptrend after breaking above month-long consolidation. 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:

S&P 500 index - short position: profit target level: 2,615; stop-loss level: 2,665,
S&P 500 futures contract (September) - short position: profit target level: 2,612; stop-loss level: 2,662
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $261.5; stop-loss level: $266.5
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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