Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was bearish. It proved partly wrong because the S&P 500 index was virtually flat following slightly lower opening of the trading session and an intraday move up. 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 main U.S. stock market indexes were mixed between -0.3% and 0.0% on Tuesday, as investors hesitated following recent record-breaking rally. The S&P 500 index has reached new all-time high at the level of 2,597.02, before closing 0.02% lower. The Dow Jones Industrial Average reached new record high at the level of 23,602.12. The technology Nasdaq Composite extended its uptrend, as it reached new record high of 6,795.52, following last week's better-than-expected quarterly earnings releases. The nearest important level of support of the S&P 500 index remains 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 2,600, 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 Again

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.1% and 0.0% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for the Crude Oil Inventories number release at 10:30 a.m. The market expects that it fell 2.5M last week. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation following yesterday's move down off new record high. The nearest important level of support is at around 2,580, marked by local low. The next support level is at 2,570-2,575, marked by previous short-term local lows. On the other hand, resistance level is at around 2,590-2,600, marked by new record high. The futures contract trades below its recent upward trend line, as we can see on the 15-minute chart:

Nasdaq Fluctuates Along Record High

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates following recent rally. The nearest important level of resistance is at around 6,330, marked by new 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 trades within its short-term consolidation along new all-time high, as ther 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 extended its last week'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 Monday's daily high. However, it closed virtually flat again (+0.04%). Is this some topping pattern before downward correction? We can see some short-term negative technical divergences:

Concluding, the S&P 500 index continues its uptrend, as it gets closer to 2,600. However, the market remains within a relatively narrow short-term trading range. 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. Will the broad stock market index 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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