Briefly:

Intraday trade: Our Monday's intraday trading outlook was bearish. It proved partly accurate because the S&P 500 index lost 0.2% vs. its Friday's closing price. However, the index remained within relatively narrow intraday trading range. The market may retrace some of its recent rally today, as investors will likely continue taking short-term profits off the table. Therefore, intraday short position is favored. Stop-loss is at the level of 2,565 again and potential profit target is at 2,530 (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 main U.S. stock market indexes lost 0.1-0.2% on Monday, as investors took short-term profits off the table following recent move up. The S&P 500 index remains close to its Thursday's new all-time high of 2,552.51. It continued to fluctuate within Thursday's trading range. The Dow Jones Industrial Average reached new record high at the level of 22,803.37 yesterday, before closing slightly lower. The technology Nasdaq Composite has also reached new record high, at the level of 6,599.34. It closed 0.2% below Friday's closing price. The nearest important level of support of the S&P 500 index is still at around 2,540, marked by recent fluctuations. The next support level is at 2,520-2,530, marked by last Tuesday's daily gap up of 2,519.44-2,520.40 and short-term local lows. The support level is also at 2,500-2,510, marked by previous level of resistance and local highs. On the other hand, resistance level is at 2,550-2,555, marked by the above-mentioned new all-time high. The S&P 500 index accelerated its uptrend recently. We still can see medium-term negative technical divergences along with technical overbought conditions. However, there have been no confirmed negative signals so far:

Will Uptrend Continue?

Expectations before the opening of today's trading session are slightly positive, with index futures currently up 0.1-0.2% vs. their yesterday's closing prices. The European stock market indexes have been mixed so far. There will be no new important economic data announcements today. Investors will wait for quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation, as it extends its recent fluctuations. The nearest important level of resistance is at around 2,550, marked by new record high. On the other hand, level of support is at 2,535-2,540, marked by previous resistance level and some local lows. The next support level is at 2,530, marked by short-term consolidation. The support level is also at 2,520-2,525, marked by local lows. The futures contract trades within an over two-day-long consolidation along new record high, as we can see on the 15-minute chart:

Nasdaq Still Close To Record High

The technology Nasdaq 100 futures contract continues to trade along its new record high, as investors' sentiment remains bullish. The nearest important level of resistance is at around 6,080-6,100. On the other hand, support level is at around 6,050, marked by short-term local lows. The next support level remains at 6,000-6,020, marked by previous level of resistance. The Nasdaq 100 futures contract broke below the Thursday-Monday's rising wedge pattern, but will it reverse its uptrend?

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It remains relatively weaker than record-breaking broad stock market indexes. The stock price bounced off support level at around $150 at the end of September. It retraces some of its early September decline. Is this a new uptrend or just upward correction?

Now, let's take a look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) again. The blue-chip index reached new record highs, as it got even closer to 23,000 mark. There have been no confirmed negative signals so far. However, we still can see some negative technical divergences. The price continues higher, while technical indicator like RSI (Relative Strength Index) forms a lower high or remains at the same level. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. Bearish divergence is a moderately useful tool for detecting a coming reversal in the bullish trend, therefore it needs a confirmation. We can see relatively steep month-long upward trading channel or some negative rising wedge pattern. Is this a topping pattern?

Concluding, the S&P 500 index slightly extended its Friday's move down, as it lost 0.2% yesterday. There have been no confirmed negative signals so far. However, we can see technical overbought conditions, along with very bullish investors' sentiment. The broad stock market may retrace some of its recent advance at some point.

Our medium-term short position (opened on June 5 at 2,437.83 - opening price of the S&P 500 index) has been closed on Tuesday, October 3, at the stop-loss level of 2,530 - S&P 500 index. We lost 92.17 index points or 3.8% on that trade, betting against long-term uptrend. Overall, this four-month-long medium-term bearish position proved wrong. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow. Currently, we prefer to be out of the market, avoiding low risk/reward ratio trades. We will let you know when we think it is safe to get back in the market.

To summarize: no intraday or medium-term positions are justified from the risk/reward perspective at this moment.

Intraday trade:

S&P 500 index - short position: profit target level: 2,530; stop-loss level: 2,565,
S&P 500 futures contract (September) - short position: profit target level: 2,527; stop-loss level: 2,562
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $253; stop-loss level: $256.5

Medium-term trade:

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

Thank you.

Paul Rejczak
Stock Trading Strategist
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