Briefly:

Intraday trade: Our Friday's intraday trading outlook was bearish. It proved wrong, because the S&P 500 gained 0.7% following higher opening of the trading session (+0.3%). The broad stock market extended its short-term uptrend again. 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 today. Stop-loss is at the level of 2,760 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 0.7-0.9% on Friday, extending their record-setting rally, as investors' sentiment remained very bullish following breakout above recent consolidation. Despite worse-than-expected monthly jobs data release the S&P 500 index has reached yet another new all-time high at the level of 2,743.45. The broad stock market gauge extended its almost nine-year-long bull market. The Dow Jones Industrial Average gained 0.9%, as it was relatively stronger than the S&P 500 index on Friday. The blue-chip index reached new record high at 25,299.79. The technology Nasdaq Composite also extended its rally, as it gained 0.7%. It reached new record high above the level of 7,100. The nearest important level of support of the S&P 500 index is at around 2,730, marked by Friday's daily low. The next support level is at 2,715-2,720, marked by Thursday's daily gap up of 2,714.37-2,719.07. The support level is also at 2,695-2,700, marked by recent consolidation. On the other hand, potential resistance level is at 2,750. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Mixed Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.1% and +0.1% vs. their Friday's closing prices. The European stock market indexes have been mixed so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following last week's rally. The nearest important level of support is at around 2,720-2,730, marked by recent fluctuations. On the other hand, potential resistance level is at 2,750. The futures contract is relatively close to new record high, as the 15-minute chart shows:

Tech Stocks At Record Highs

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The price fluctuates along new record highs. The nearest important level of support is at around 6,650, marked by Friday's intraday consolidation. The next support level is at 6,600. On the other hand, level of resistance is at 6,680-6,700, among others. The Nasdaq 100 futures contract trades along its short-term 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). The price reached new record high over two 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 last week. The price is close to resistance level again, but will it break above its record high?

The Dow Jones Industrial Average daily chart shows that blue-chip index broke above its short-term consolidation last Wednesday, and it reached new record highs on Thursday and on Friday. 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 an euphoria medium-term topping pattern?

Concluding, the S&P 500 index gained 0.7% on Friday, as it extended its record-setting rally. The broad stock market gauge trades closer to 2,750 mark. Will uptrend continue despite some clear short-term overbought conditions? Or 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: 2,760,
S&P 500 futures contract (September) - short position: profit target level: 2,708; stop-loss level: 2,658
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $270.3; stop-loss level: $275.3

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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