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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

S&P 500 Grinds Higher, But Stock Market Correction Looms

Stock-Markets / Stock Markets 2018 Jan 05, 2018 - 03:49 PM GMT

By: Paul_Rejczak

Stock-Markets

Briefly:
Intraday trade: Our Thursday's intraday trading outlook was neutral. It proved partly accurate, because the S&P 500 gained 0.4% following higher opening of the trading session (+0.2%). The broad stock market continued its short-term uptrend, but it remained within a relatively narrow intraday trading range. 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 2,750 and potential profit target is at 2,700 (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 gained 0.2-0.6% on Thursday, as they extended their record-setting rally following Wednesday's breakout above short-term consolidation. The S&P 500 index has reached yet another new all-time high at the level of 2,729.29. The broad stock market gauge extends its almost nine-year-long bull market. The Dow Jones Industrial Average gained 0.4%, as it was relatively stronger than the S&P 500 index yesterday. The blue-chip index reached new record high at 25,105.96. The technology Nasdaq Composite slightly extended its Tuesday's rally, as it gained 0.2%. It reached new record high close to the level of 7,100. The nearest important level of support of the S&P 500 index is now at around 2,715-2,720, marked by yesterday's daily gap up of 2,714.37-2,719.07. The next support level is at 2,695-2,700, marked by recent consolidation. The support level is also at 2,680-2,685, marked by short-term local low. On the other hand, potential resistance level is at 2,730-2,750. There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Positive Expectations Again

Expectations before the opening of today's trading session are positive, with index futures currently up 0.3-0.4% vs. yesterday's closing prices. The European stock market indexes have gained 0.3-1.1% so far. Investors will wait for some important economic data announcements today: Nonfarm Payrolls, Unemployment Rate, Trade Balance at 8:30 a.m., ISM Non-Manufacturing PMI number, Factory Orders at 10:00 a.m. The market expects that Nonfarm Payrolls were at +190,000, and the Unemployment Rate was at 4.1% in December. The S&P 500 futures contract trades within an intraday uptrend, as it reaches new record highs ahead of the above-mentioned economic data releases. The nearest important level of support is now at around 2,720, marked by short-term consolidation. The next support level is at 2,700-2,710, among others. The futures contract continues to trade above its relatively steep upward trend line, as the 15-minute chart:

Nasdaq At New Record High

The technology Nasdaq 100 futures contract follows a similar path, as it slightly extends its uptrend this morning. The market reached new record highs above the level of 6,630. The nearest important level of support is at around 6,590-6,600, marked by recent fluctuations. The Nasdaq 100 futures contract is above 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 on Tuesday. However, Wednesday's intraday stock price action was bearish, as it bounced off resistance level:

The Dow Jones Industrial Average daily chart shows that blue-chip index broke above its short-term consolidation on Wednesday, as it reached new record high. 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. Despite reaching new all-time highs recently, the index continues to trade slightly below two-month-long rising wedge pattern. Is this an euphoria topping pattern?

Concluding, the S&P 500 index gained 0.4% on Thursday, as it continued its record-setting rally following Wednesday's breakout above short-term consolidation. The index trades well above 2,700 mark. Will uptrend continue today? 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.

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Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts
SunshineProfits.com

Stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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Disclaimer

All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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