Briefly:

Intraday trade: Our Tuesday's intraday trading outlook was neutral. It proved partly wrong, because the S&P 500 lost 0.4% following higher opening of the trading session (+0.5%). The market broke above 2,800 mark before reversing and closing lower. We still can see some clear short-term overbought conditions along with an overly bullish investors' sentiment. Therefore, intraday short position is favored today. Stop-loss is at the level of 2,815 and potential profit target is at 2,750 (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 were mixed between -0.5% and 0.0% on Tuesday following volatile trading session, as investors took short-term profits off the table. The S&P 500 index has reached yet another new record high at the level of 2,807.54, before reversing and closing 0.4% lower. The Dow Jones Industrial Average reached new record high of 26,086.12, but it closed virtually flat. The technology Nasdaq Composite reached new record high at 7,330.33. The nearest important level of support of the S&P 500 index is at 2,765-2,770, marked by Friday's daily gap up of 2,767.56-2,769.64. The next support level is at around 2,760, marked by last Tuesday's local high. The support level is also at 2,750, marked by Thursday's daily gap up of 2,750.80-2,752.78. On the other hand, resistance level is now at 2,800-2,810, marked by new all-time high. We still can see medium-term technical overbought conditions along with negative technical divergences. Was yesterday'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. The market trades well above its medium-term upward trend lines, as we can see on the daily chart:

Positive Expectations, Just Bounce?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.3-0.6% vs. their Tuesday's closing prices. The European stock market indexes have lost 0.1-0.2% so far. Investors will wait for some economic data announcements: Industrial Production, Capacity Utilization at 9:15 a.m., NAHB Housing Market Index at 10:00 a.m., Beige Book release at 2:00 p.m. The market expects that Industrial Production grew 0.4% in December. The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of its yesterday's decline. The nearest important level of resistance is at around 2,800-2,810, marked by new record high. On the other hand, support level is at 2,770-2,775, marked by local low. The futures contract trades below 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 retraces some of its Tuesday's move down. The nearest important level of support remains at around 6,730-6,750, marked by yesterday's daily lows. On the other hand, level of resistance is at 6,800, and the next resistance level is at 6,820-6,840, marked by record high. The Nasdaq 100 futures contract is closer to 6,800 mark again, 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 on Tuesday, before closing below its Friday's closing price. The nearest important support level is now at around $175, marked by previous resistance level:

Amazon.com, Inc. stock (AMZN) was relatively stronger than the broad stock market recently, as it broke above $1,300 mark. It accelerated its uptrend yesterday, before closing flat. Is this a downward reversal or just quick correction?

The Dow Jones Industrial Average daily chart shows that blue-chip index reached new record high yesterday, but it closed virtually flat. 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 broke above its two-month-long rising wedge pattern on Friday:

Concluding, the S&P 500 index reached new record high on Tuesday, before reversing and closing lower. Was this a downward reversal day? We still can see some medium-term overbought conditions and negative technical divergences.

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: 2,750; stop-loss level: 2,815,
S&P 500 futures contract (September) - short position: profit target level: 2,747; stop-loss level: 2,812
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $270.0; stop-loss level: $281.0

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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