Briefly:

Intraday trade: Our Monday's intraday trading outlook was neutral. It proved accurate, because the S&P 500 gained just 0.2% following neutral opening of the trading session. The market slightly extended its uptrend and reached new record high. 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 0.0% and +0.7% on Tuesday, as investors hesitated following recent record-breaking rally. The S&P 500 index has reached yet another new all-time high at the level of 2,842.24. It broke above its last week's short-term consolidation along the level of 2,800. The Dow Jones Industrial Average has also reached new record high at the level of 26,246.19. However, the blue-chip index was relatively weaker than the broad stock market again. It closed virtually flat. The technology Nasdaq Composite was relatively strong, as it gained 0.7% and reached new all-time high at 7,465.40. The nearest important level of support of the S&P 500 index is at around 2,830, marked by yesterday's daily low. The next support level is at 2,800-2,810, marked by previous resistance level. The support level is also at around 2,780, marked by recent local lows. The support level is the price level, at which the buying interest is strong enough to overcome selling pressure and push the price higher. Support usually refers to the previous low or lows, lines that are created by drawing the line between previous important bottoms or important tops and then extrapolating this line into the future. We still can see medium-term technical overbought conditions. However, the market continues to extend its nine-year-long bull market:

At Record Highs

Expectations before the opening of today's trading session are slightly positive, because index futures trade 0.1-0.2% higher vs. their Tuesday's closing prices. The European stock market indexes have lost 0.1-0.4% so far. Investors will wait for some economic data announcements: Flash Manufacturing PMI at 9:45 a.m., Existing Home Sales at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that the Manufacturing PMI was at 55.2 in January. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates along new record high following an overnight move up. The nearest important level of resistance is at around 2,850. On the other hand, support level is at 2,835-2,840, marked by some recent fluctuations. The next support level is at 2,825-2,830, marked by yesterday's local lows. The futures contract trades above its short-term upward trend line, as we can see on the 15-minute chart:

Nasdaq 100 Closer To 7,000 Mark

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It got closer to 7,000 mark, as it reached new record highs following breakout above the level of 6,900. The nearest important level of resistance is at around 6,980-7,000. On the other hand, support level is at 6,950. The next level of support is at 6,880-6,900. The Nasdaq 100 futures contract remains close to its new all-time high, 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 stock reached new record high on Thursday last week, following short-term consolidation along the support level of $175. The market got closer to $180 mark, but it failed to continue its short-term uptrend. 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.

Facebook, Inc. stock (FB) reached new record high yesterday, as it got closer to $190 mark. It accelerates its medium-term uptrend ahead of quarterly earnings announcement on January 31. The price is currently at the top of its two-month-long upward trading channel. Will it break above it or reverse the uptrend?

The Dow Jones Industrial Average daily chart shows that blue-chip index reached new record high on Tuesday, as it continued its short-term uptrend following breakout above 26,000 mark. We still can see some medium-term negative technical divergences. The index trades above its two-month-long rising wedge pattern (failed uptrend reversal pattern):

Concluding, the S&P 500 index gained 0.2% on Tuesday, as it slightly extended its Monday's advance following breakout above last week's short-term consolidation. The broad stock market continued its almost month-long bullish euphoria run. The index is currently trading over 6% above its December 29 yearly closing price. Is this some medium-term topping pattern before uptrend reversal? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions. We can 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. Paying attention to the overbought/oversold status of the market is very useful, but there are many other factors that need to be considered before placing a trade.

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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