Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was bearish. It proved partly wrong, because the S&P 500 gained 0.1% following slightly higher opening of the trading session (+0.1%). The broad stock market continued its short-term uptrend, but it bounced off resistance level at around 2,760. There have been no confirmed negative signals so far. However, we can see some clear short-term overbought conditions along with an overly bullish investors' sentiment. Therefore, intraday short position is favored again. Stop-loss is at the level of 2,765 and potential profit target is at 2,710 (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 U.S. stock market indexes gained 0.1-0.4% on Tuesday, slightly extending their uptrend, as investors' sentiment remained bullish following recent rally. The S&P 500 index has reached yet another new all-time high at the level of 2,759.14. The Dow Jones Industrial Average gained 0.4%, as it was relatively stronger than the broad stock market yesterday. The blue-chip index reached new record high at 25,439.78. The technology Nasdaq Composite gained 0.1%. It reached new record high, as it got closer to 7,200 mark. The nearest important level of support of the S&P 500 index is at around 2,735-2,740, marked by recent fluctuations. The next support level is at 2,730, marked by Friday's daily low. The support level is also at 2,715-2,720, marked by Thursday's daily gap up of 2,714.37-2,719.07. On the other hand, potential resistance level is at 2,760, 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:

Negative Expectations

Expectations before the opening of today's trading session are negative, with index futures currently down 0.5-0.6% vs. yesterday's closing prices. The European stock market indexes have been mixed so far. Investors will wait for some economic data announcements: Wholesale Inventories at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that Wholesale Inventories grew 0.7% in November. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its recent advance. The nearest important level of support is at 2,735-2,740, marked by short-term local lows. The next support level is at 2,720-2,730, marked by last week's fluctuations. On the other hand, resistance level is at 2,750-2,760. The futures contract retraces some of its recent move up, as the 15-minute chart shows:

Nasdaq Also Lower

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday downtrend. The market bounced off resistance level at around 6,700. It retraces some of its recent rally. The nearest important level of support is at around 6,620-6,640, marked by previous consolidation. The next support level is at 6,600. The Nasdaq 100 futures contract trades below its recent 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) again. The price reached new record high three weeks ago, as it broke above $175 mark. It failed to continue that rally and fluctuated along the level of $175. Then, the stock fell to support level of around $170 again, marked by the early November daily gap up. It bounced off the support level recently. The price is close to resistance level again, but will it break above record high?

The Dow Jones Industrial Average daily chart shows that blue-chip index broke above its short-term consolidation last week. Then it continued reaching several new record highs. 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 euphoria medium-term topping pattern?

Concluding, the S&P 500 index gained 0.1% on Tuesday, after it reached new record high at the level of 2,759.14. The broad stock market gauge retraced its intraday surge yesterday, but will it reverse the short-term uptrend? The uptrend continued despite some clear short-term overbought conditions. Is this some topping pattern ahead of downward correction? 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:

S&P 500 index - short position: profit target level: 2,710; stop-loss level: 2,765,
S&P 500 futures contract (September) - short position: profit target level: 2,708; stop-loss level: 2,663
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $270.3; stop-loss level: $275.8

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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