S&P 500 At Record High But Will Stocks Continue Even Higher?

Briefly:

Intraday trade: Our Friday's intraday trading outlook was bearish. It proved partly wrong because the S&P 500 index remained within relatively narrow intraday trading range. Overall, it lost 0.1%. The index may retrace some of its recent rally today, as investors will likely continue taking short-term profits off the table. Therefore, intraday short position is favored. Stop-loss is at the level of 2,565 and potential profit target is at 2,530 (S&P 500 index).

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 +0.1% on Friday, following worse-than-expected monthly jobs data release. The S&P 500 index remained close to its Thursday's new all-time high at the level of 2,552.51. It fluctuated within Thursday's trading range. The Dow Jones Industrial Average traded close to new record high of 22,777.04, and the technology Nasdaq Composite reached new record high of 6,590.18, as it gained 0.1% on Friday. The nearest important level of support of the S&P 500 index is at around 2,540, marked by some recent fluctuations. The next support level is at 2,520-2,530, marked by last Tuesday's daily gap up of 2,519.44-2,520.40 and short-term local lows. The support level is also at 2,500-2,510, marked by previous level of resistance and local highs. The S&P 500 index accelerated its uptrend recently. We still can see medium-term negative technical divergences along with technical overbought conditions. However, there have been no confirmed negative signals so far:

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2% vs. Friday's closing prices. The European stock market indexes have been mixed so far. There will be no new important economic data releases today. The S&P 500 futures contract trades within an intraday uptrend, as it retraces its recent move down. The nearest important level of resistance is at around 2,550, marked by new record high. On the other hand, level of support is at 2,535-2,540, marked by previous resistance level. The next support level is at 2,530, marked by short-term consolidation. The support level is also at 2,520-2,525, marked by recent local lows. The futures contract remains above its short-term upward trend line as the 15-minute chart shows:

Nasdaq At New Record High

The technology Nasdaq 100 futures contract extends its long-term uptrend, as it reaches new record high today. The nearest important level of support is at around 6,050, marked by some short-term local lows. The next support level remains at 6,000-6,020, marked by previous level of resistance. Potential level of resistance is currently at around 6,100. The Nasdaq 100 futures contract trades within a potential rising wedge reversal pattern, 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). It is still relatively weaker than the record-breaking broad stock market gauges. The stock price bounced off support level at around $150 at the end of September. There have been no confirmed positive signals so far. The Apple stock price remains at short-term resistance level of $155, marked by previous local lows:

Now, let's take another look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com). The blue-chip index reached new record highs, as it got closer to 23,000 mark. There have been no confirmed negative signals so far. However, we still can see some negative technical divergences. The price continues higher, while technical indicator like RSI (Relative Strength Index) forms a lower high or remains at the same level. It shows us that even though price reaches new highs, the fuel for the uptrend starts running low. Bearish divergence is a moderately useful tool for detecting a coming reversal in the bullish trend, therefore it needs a confirmation. We can see relatively steep month-long upward trading channel or some negative rising wedge pattern. Is this a topping pattern?

Concluding, the S&P 500 index lost 0.1% on Friday, as it remained close to new record high. Will uptrend continue? Or is this some topping pattern before downward reversal? There have been no confirmed negative signals so far. However, we can see technical overbought conditions, along with very bullish investors' sentiment. The broad stock market may retrace some of its recent advance at some point

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Thank you.

Paul Rejczak
Stock Trading Strategist
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