Briefly:

Intraday trade: Our Thursday's intraday trading outlook was bearish. It proved wrong because the S&P 500 index gained 0.1% (neutral), following slightly higher opening of the trading session. The S&P 500 index may retrace more of its October rally. Therefore, intraday short position is favored again. Stop-loss is now at the level of 2,580 and potential profit target is at 2,535 (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 -0.1% and +0.3% on Thursday, as investors continued to hesitate following October record-breaking rally. The S&P 500 index extended its short-term fluctuations along the level of 2,560. It remains around 0.7% below its Monday's new all-time high of 2,578.29. The Dow Jones Industrial Average trades close to Tuesday's new all-time high of 23,485.25, as it fluctuates along 22,400 mark. The technology Nasdaq Composite was relatively weaker than the broad stock market, as it lost 0.1% ahead of main tech stocks quarterly earnings releases. It closed around 1.3% below its Monday's new record high of 6,641.57. The nearest important level of support of the S&P 500 index is at 2,545-2,550, marked by Wednesday's daily low and some previous local lows. The next support level is at 2,520-2,530, marked by the October 2 daily gap up of 2,519.44-2,520.40, among others. On the other hand, resistance level is at 2,565-2,570, marked by short-term fluctuations. The next level of resistance is at around 2,580, marked by the above-mentioned all-time high. The S&P 500 index retraced some of its recent advance recently, as it fell below the level of 2,550. Is this a new downtrend or just quick downward correction before another leg up? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions:

Will S&P 500 Continue Higher?

Expectations before the opening of today's trading session are positive, with index futures currently up between 0.2% and 0.5% vs. their Thursday's closing prices. The European stock market indexes have gained 0.3-0.8% so far. Investors will wait for some economic data announcements: U.S. GDP Advance number at 8:30 a.m., Michigan Sentiment at 10:00 a.m. The market expects that the U.S. GDP grew 2.6% in the last quarter. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation, following overnight move up. The market retraces some of its recent decline. The nearest important level of support is at around 2,555-2,560, marked by yesterday's fluctuations. The next level of support is at 2,540-2,550. On the other hand, resistance level is at 2,570-2,580, marked by local highs. The futures contract trades above its recent downward trend line, and it gets closer to Monday's record high, as we can see on the 15-minute chart:

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract retraces most of its over week-long move down, as investors react to better-than-expected quarterly earnings releases from Amazon, Alphabet (Google) and Microsoft. The nearest important level of resistance is at around 6,120-6,130, marked by record high. On the other hand, support level is at 6,080-6,100 again, marked by previous level of resistance. The support level is also at 6,030-6,050, marked by some recent fluctuations. The Nasdaq 100 futures contract rallied following yesterday's earnings releases and got closer to record high along the level of 6,130, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It broke below its short-term upward trend line last week, after reaching resistance level of $160. Since then it fluctuates within a short-term consolidation along the price of $156-$157. Is this a new downtrend or just downward correction following recent advance?

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index fluctuates following its recent rally. The market retraced some of its recent move up, but it remains close to new record high. We still can see clear technical overbought conditions. We can say that something (i.e. individual asset, entire market, technical indicator) is overbought when its value rises so high that (according to the technical analysis) it’s unlikely to advance even further. Generally, an overbought market is a sign that a downward correction is likely to occur. Traders 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. Is this a medium-term blow-off top pattern?

Concluding, the S&P 500 index was virtually flat on Thursday, as investors hesitated following recent volatility. Is this a topping pattern or just consolidation before another leg up? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions along with 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: 2,535; stop-loss level: 2,580,
S&P 500 futures contract (September) - short position: profit target level: 2,532; stop-loss level: 2,577
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $253.5; stop-loss level: $258.0

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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