Briefly:

Intraday trade: Our Wednesday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.8%, following higher opening of the trading session. The market accelerated its Wednesday's rebound off support level. However, the index hasn't reached our yesterday's stop-loss level of 2,595. We still can see medium-term negative technical divergences, but the market may extend its month-long consolidation following yesterday's rally. 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 U.S. stock market indexes gained between 0.8% and 1.3% on Thursday, retracing most of their recent move down, as investors' sentiment improved following global stock markets' rebound, economic data releases, among others. The S&P 500 index got closer to its November 7 record high of 2,597.02. It currently trades just 0.4% below that level. The Dow Jones Industrial Average has also retraced most of its recent decline. The blue-chip index gained 0.8% yesterday. The technology Nasdaq Composite was relatively stronger than the broad stock market, as it reached new record high at the level of 6,806.68. It gained 1.3% on Thursday. The nearest important level of resistance of the S&P 500 index is now at 2,595-2,600, marked by the above-mentioned all-time high. On the other hand, support level is at around 2,580, marked by previous resistance level. The next level of support is at 2,555-2,560, marked by recent local lows. The S&P 500 index extends its almost 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:

Flat Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.1% and +0.1% vs. their Thursday's closing prices. The European stock market indexes have gained 0.1-0.2% so far. Investors will wait for some economic data announcements: Building Permits, Housing Starts at 8:30 a.m. The market expects that Building Permits were at 1.25M, and Housing Starts were at 1.19M in October. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following yesterday's rally. The nearest important level of resistance is at around 2,590, marked by local high. On the other hand, support level is at 2,570-2,575, marked by yesterday's intraday consolidation. The futures contract trades slightly below its previous local highs, as the 15-minute chart shows:

Nasdaq At New Record High

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It is relatively stronger than the broad stock market gauge, as it remains close to new record high slightly below the level of 6,360. The nearest important level of resistance is at 6,360. On the other hand, support level is at 6,300-6,320, marked by previous resistance level. The Nasdaq 100 futures contract is at its relatively steep short-term upward trend line, as we can see on the 15-minute chart:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) again. The price reached new record high last week, 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 yesterday. Is short-term downtrend reversing?

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index retraced its recent move down yesterday. Will it continue higher? Or is this just a move within week-long consolidation? 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 retraced most of its recent decline yesterday, as it gained 0.8% vs. Wednesday's closing price. Is this a new uptrend or just move within month-long consolidation? We still can see medium-term overbought conditions along with negative technical divergences. However, there have been no confirmed medium-term 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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