Briefly:

Intraday trade: Our Friday's intraday trading outlook was neutral. It proved wrong, because the S&P 500 lost 0.5% following slightly higher opening of the trading session . The broad stock market retraced its last week's advance on Friday, as it fell the lowest since December 15. We still can see medium-term technical overbought conditions. However, there have been no confirmed negative signals so far. Therefore, we prefer to be out of the market again, 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 lost 0.5-0.7% on Friday, as investors continued to take short-term profits off the table following the early December advance. The S&P 500 index trades 0.8% below its December 18 all-time high of 2,694.97. The Dow Jones Industrial Average lost 0.5%, and the technology Nasdaq Composite lost 0.7% on Friday. The nearest important level of support of the S&P 500 index is now at around 2,670, marked by previous fluctuations. The next support level is at 2,650-2,655, marked by local low. On the other hand, the nearest important level of resistance is at 2,680, marked by previous level of support. The resistance level is also at 2,695-2,700, marked by new all-time high. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Uncertainty Following Friday's Move Down

Expectations before the opening of today's trading session are slightly positive, with index futures currently up 0.1-0.2% vs. their Friday's closing prices. The European stock market indexes have lost 0.4-0.8% so far. Investors will now wait for the Manufacturing PMI number release at 9:45 a.m. The market expects that it was at 55.0 in December. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates after its Friday's move down. The nearest important level of resistance is at around 2,685, marked by recent fluctuations. On the other hand, support level is at 2,670-2,675, marked by intraday local lows. The futures contract trades below its last week's local lows, as we can see on the 15-minute chart:

Below Recent Consolidation

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The nearest important support level is at around 6,400, marked by short-term local low. On the other hand, resistance level is at 6,440-6,470, marked by last week's consolidation. The Nasdaq 100 futures contract  broke below its last week's trading range, 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 two weeks ago, as it broke above $175 mark. However, it failed to continue that rally and fluctuated along the level of $175. Then, the stock fell to support level of around $170, marked by the early November daily gap up. Is this a short-term bottom or just pause before another leg down? The market remains close to support level:

The Dow Jones Industrial Average daily chart shows that blue-chip index continues to fluctuate following the early December move up. 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. The index broke below its two-month-long rising wedge pattern on Friday:

Concluding, the S&P 500 index lost 0.5% on Friday, as investors' sentiment slightly worsened. Is this a topping pattern or just correction within an uptrend? 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.

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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