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 slightly lower opening of the trading session. The market extended its short-term consolidation. We still can see technical overbought conditions along with negative divergences. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,605 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 gained 0.1% on Monday, extending their short-term fluctuations, as investors hesitated following last week's volatility. The S&P 500 index retraced its week-long advance on Thursday, as it fell below the level of 2,570, before bouncing off support level. It currently trades around 0.5% below last week's Tuesday's new all-time high of 2,597.02. The Dow Jones Industrial Average remained within its three-session-long consolidation, as it gained 0.1%. The technology Nasdaq Composite also gained 0.1% on Monday. The nearest important level of support of the S&P 500 index is now at 2,565-2,570, marked by Thursday's local low. The next support level is at 2,545-2,560, marked by some previous local lows. On the other hand, the nearest important level of resistance is at 2,585-2,590, marked by recent fluctuations. The next resistance level is at around 2,600, marked by Tuesday's record high of 2,597.02. The S&P 500 index fluctuates following its September-November rally. Is this a topping pattern or just pause before another leg up? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions:

Flat Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.1% and 0.0% vs. their Monday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for the Producer Price Index release at 8:30 a.m. The market expects that it grew 0.1% in October. The S&P 500 futures contract trades within an intraday consolidation following yesterday's advance. The nearest important level of support remains at around 2,565-2,570, marked by local lows. On the other hand, resistance level is at 2,585, among others. The futures contract extends its short-term fluctuations, as the 15-minute chart shows:

Tech Stocks Close To Record High

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The nearest important support level is at 6,300, and the next level of support is at 6,280, among others. On the other hand, resistance level is at around 6,320-6,350, marked by record high. The Nasdaq 100 futures contract trades within a three-day-long consolidation, 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 on Wednesday last week, as it extended its uptrend following better-than-expected quarterly earnings release. Since then Apple stock trades close to record high, after retracing some of its recent rally. But 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 broke slightly below its two-month-long upward trend line on Thursday. Is this a downward reversal or just quick downward correction? We still can see some short-term negative technical divergences:

Concluding, the S&P 500 index extended its short-term fluctuations yesterday. The broad stock market remains relatively close to its last week's new record high. It trades just 0.5% below that high. Is this a topping pattern or just consolidation within medium-term uptrend? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions along with negative technical divergences. But will they lead to a downward correction?

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: 2,605,
S&P 500 futures contract (September) - short position: profit target level: 2,552; stop-loss level: 2,602
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $255.5; stop-loss level: $260.5

Medium-term trade:

No medium-term position is justified from the risk/reward perspective at this moment.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts