Briefly:

Intraday trade: Our Thursday's intraday trading outlook was neutral. It proved accurate, because the S&P 500 lost 0.2% following virtually flat opening of the trading session. The market retraced its Tuesday's move down on Wednesday, but it failed to continue the uptrend yesterday. We still can see some clear short-term overbought conditions along with an overly bullish investors' sentiment. However, there have been no confirmed negative signals so far. 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 were mixed between -0.4% and 0.0% on Thursday, extending their short-term fluctuations along new record highs, as investors took some profits off the table. The S&P 500 index remained close to its Tuesday's record high of 2,807.54. The Dow Jones Industrial Average reached new record high of 26,153.42 yesterday, and the technology Nasdaq Composite remained below Tuesday's all-time high, as it was unchanged. The nearest important level of support of the S&P 500 index is at around 2,780, marked by some recent local lows. The next support level is at 2,765-2,770, marked by Friday's daily gap up of 2,767.56-2,769.64. The support level is also at around 2,760, marked by last Tuesday's local high. On the other hand, resistance level is at 2,805-2,810, marked by new all-time high. We still can see medium-term technical overbought conditions along with negative technical divergences. Was Tuesday's trading session some major downward reversal day? Downward reversal day is a day in which the price reaches new high followed by a lower close. For now, it looks like a short-term consolidation following recent rally:

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up 0.3-0.5% vs. their Thursday's closing prices. The European stock market indexes have gained 0.3-0.9% so far. Investors will wait for the Michigan Sentiment number release at 10:00 a.m. The market expects that it was at 97.0 in January. The S&P 500 futures contract trades within an intraday uptrend, as it retraces its yesterday's move down. The nearest important level of resistance is at around 2,810, marked by record high. On the other hand, support level is at 2,790-2,800, among others. The futures contract remains just below its all-time high, 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 uptrend. The market reaches new record highs this morning. The nearest important level of support is at around 6,800-6,830, marked by short-term consolidation. The Nasdaq 100 futures contract is trading above its 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). The stock reached new record high yesterday, following short-term consolidation along the support level of $175. The market got closer to $180 mark. 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.

Amazon.com, Inc. stock (AMZN) was relatively stronger than the broad stock market recently. It accelerated its medium-term uptrend and broke above $1,300 mark. We can see some relative weakness since Tuesday, as the price fluctuates below its new record high. Is this an uptrend reversal or just quick correction before another leg up?

The Dow Jones Industrial Average daily chart shows that blue-chip index reached new record high yesterday. It continues to trade above its two-month-long rising wedge pattern. Was yesterday's intraday reversal some major topping pattern? The nearest important level of support remains at around 25,000-25,500:

Concluding, the S&P 500 index remained close to its Tuesday's record high yesterday. The broad stock market trades within a short-term consolidation following recent rally. Will uptrend continue despite some clear technical overbought conditions and negative technical divergences? For now, it looks like a consolidation within an uptrend. 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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