Briefly:
Intraday trade: Our Thursday's intraday trading outlook was bearish. It proved wrong, because the S&P 500 gained 0.7% following higher opening of the trading session (+0.2%). The market reached our stop-loss level of 2,765 (S&P 500 index set its daily high at 2,767.56). There have been no confirmed negative signals so far. We 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. 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 0.7-0.8% on Thursday, extending their short-term uptrend, as investors' sentiment improved again following economic data releases, among others. The S&P 500 index has reached yet another new record high at the level of 2,767.56 following breakout above its Tuesday-Wednesday consolidation. The Dow Jones Industrial Average reached new record high of 25,575.42, and the technology Nasdaq Composite reached new record high at 7,211.78. The nearest important level of support of the S&P 500 index is now at around 2,760, marked by Tuesday's local high. The next support level is at around 2,750, marked by yesterday's daily gap up of 2,750.80-2,752.78. The support level is also at 2,725-2,735, marked by some previous local lows. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:
At New All-Time Highs
Expectations before the opening of today's trading session are positive, with index futures currently up 0.1-0.4% vs. yesterday's closing prices. The European stock market indexes have gained 0.2-0.4% so far. Investors will wait for some economic data announcements: Consumer Price Index, Retail Sales at 8:30 a.m., Business Inventories at 10:00 a.m. The market expects that Consumer Prices grew 0.1% and Retail Sales were up 0.3-0.5% in December. The S&P 500 futures contract trades within an intraday uptrend, as it extends its record-setting rally this morning. The nearest important level of support is at around 2,765-2,770, marked by short-term consolidation. The next support level is at 2,750, among others. On the other hand, potential level of resistance is at 2,800. The futures contract trades above its short-term upward trend line, as the 15-minute chart shows:
Nasdaq Also Higher
The technology Nasdaq 100 futures contract follows a similar path, as it extends its rally today. The market broke above the level of 6,700. It is currently trading along new record highs. The nearest important level of support is at around 6,700, marked by previous level of resistance. The support level is also at around 6,650, 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 is relatively weaker than the broad stock market, as it still trades below the December record high. The price reached that new record high three weeks ago following breakout above $175 mark. Apple stock is close to resistance level again, but will it break above record high?
On the other hand, Amazon.com, Inc. stock (AMZN) is relatively stronger than the broad stock market recently, as it rallies after breaking above $1,200 mark. However, we can see some clear technical overbought conditions along with negative technical divergences. Will the uptrend extend even further?
The Dow Jones Industrial Average daily chart shows that blue-chip index reaches new record highs following breakout above the level of 25,000. 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 trades within a two-month-long rising wedge pattern. Is this some medium-term topping pattern?
Concluding, the S&P 500 index extended its rally on Thursday, as it gained 0.7% following higher opening of the trading session. The market continues its nine-year-long bull market. 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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