Briefly:

Intraday trade: Our Monday's intraday trading outlook was neutral. It proved quite accurate because the S&P 500 index lost 0.3% following slightly lower opening of the trading session. Overall, the S&P 500 index remained within its Friday's intraday trading range yesterday. There have been no confirmed negative signals so far. On the other hand, we still can see some short-term overbought conditions. Therefore, 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 -0.4% and 0.0% on Monday, as investors took some short-term profits off the table following Friday's tech stocks rally. The S&P 500 index retraced some of its Friday's record-breaking move up, as it lost 0.3%. It remains around 0.3% below new record high of 2,582.98. The Dow Jones Industrial Average was relatively weaker than the broad stock market, as it lost 0.4%. It continues to trade within a short-term consolidation following month-long rally. The technology Nasdaq Composite was relatively stronger, as it reached new all-time high at the level of 6,727.39 yesterday. However, it closed virtually flat. The nearest important level of support of the S&P 500 index is at 2,560-2,565, marked by some local lows. The next support level remains at 2,545-2,550, marked by last Wednesday's daily low, among others. On the other hand, potential resistance level is at around 2,580-2,600, marked by record high, among others. The S&P 500 index extended its over eight-year-long bull market on Friday, as it reached new record high closer to 2,600 mark. Will bull market continue? Or is this some topping pattern ahead of downward reversal? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions:

Slightly Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up between 0.1% and 0.2% vs. yesterday's closing prices. The European stock market indexes have gained +0.1% so far. Investors will wait for some economic data announcements today: Chicago PMI number at 9:45 a.m., Consumer Confidence at 10:00 a.m. The market expects that Consumer Confidence was at 121.1 in October. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of yesterday's move down. The nearest important level of support is at around 2,565, marked by local low. On the other hand, resistance level is at 2,575-2,58, marked by new record high. The futures contract trades slightly below its two-day-long downward trend line, as we can see on the 15-minute chart:

Nasdaq Close To Record High

The technology Nasdaq 100 futures contract trades along new all-time highs, as it remains relatively stronger than the broad stock market. The nearest important level of resistance is at around 6,250. On the other hand, support level is at 6,200-6,220, marked by recent fluctuations. Will tech stocks' euphoria rally continue ahead of quarterly earnings releases from Facebook (November 1) and Apple (November 2)? The Nasdaq 100 futures contract remains above 6,200 mark, 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 price broke above its September 1 all-time high yesterday, and it reached new record high at $168.07. Will it continue higher ahead of quarterly earnings release on November 2? There have been no confirmed negative signals so far. However, we can see some short-term 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:

The Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) shows that blue-chip index fluctuates following its month-long rally, despite Friday's tech stocks advance. However, the market remains very close to new record high. Is this a flat correction before another leg higher or some topping pattern before downward reversal?

Concluding, the S&P 500 index retraced some of its Friday's move up yesterday, as investors took short-term profits off the table. Will the broad stock market extend its uptrend even further? Or is this some topping pattern ahead of downward correction? 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:

No intraday position is justified from the risk/reward perspective today.

Medium-term trade:

No medium-term position is justified from the risk/reward perspective at this moment.

There will be no Stock Trading Alert on Wednesday, November 1. We apologize for inconvenience.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts