Fed Takes Action, Stock Market Topping?

Fed Takes Action, Stock Market Topping?

Briefly:

Intraday trade: Our Wednesday’s intraday trading outlook was bearish. It proved partly accurate because the S&P 500 lost 0.05% following higher opening of the trading session. The index extended its short-term uptrend, as it reached new record high. There have been no confirmed negative signals so far. However, we can see some short-term technical overbought conditions. Therefore, intraday short position is favored today. Stop-loss is at the level of 2,680 and potential profit target is at 2,640 ().

Our intraday outlook is bearish again. 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 main U.S. stock market indexes were mixed between -0.05% and +0.3% on Wednesday, as investors reacted to the FOMC announcement. The S&P 500 index reached new record high of 2,671.88 (around 2 points above its Tuesday’s record high) following interest rate hike release. The was relatively stronger than the broad stock market, as it gained 0.3%. It has reached new record high at the level of 24,666.02. The technology gained 0.2% yesterday, remaining below its late November record high. The nearest important level of support of the S&P 500 index is at around 2,660, marked by recent daily lows. The next support level is at 2,650. The support level is also at 2,640, marked by last Friday’s daily gap up of 2,640.99-2,644.10. On the other hand, resistance level is at around 2,670-2,675, marked by new all-time high. Will the S&P 500 index continue its uptrend? Or is this some topping pattern before medium-term downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term technical overbought conditions along with negative technical divergences:

Daily S&P 500 index chart - SPX, Large Cap Index

Daily S&P 500 index chart – SPX, Large Cap Index

Close To Record High

Expectations before the opening of today’s trading session are slightly positive, with index futures currently up 0.1-0.2% vs. their Wednesday’s closing prices. The European stock market indexes have lost 0.3-0.5% so far. Investors will wait for some economic data announcements: , at 8:30 a.m., Flash Manufacturing PMI, Flash Services PMI at 9:45 a.m., at 10:00 a.m. The market expects that Retail Sales grew 0.3% in November. The contract trades within an intraday consolidation, as it continues to fluctuate along new record high. The nearest important level of resistance is at around 2,675. On the other hand, support level is at 2,660-2,665, marked by some recent local lows. The next level of support is at 2,650-2,655, marked by short-term fluctuations. The futures contract trades along its new record high, as the 15-minute chart shows:

S&P 500 futures contract - S&P 500 index chart - SPX

S&P 500 futures contract – S&P 500 index chart – SPX

Topping Action Or Just Consolidation?

The technology contract follows a similar path, as it trades within an intraday consolidation. The market extends its yesterday’s fluctuations along new record high. For now, it looks like a consolidation following recent advance. The nearest important level of resistance is at around 6,430-6,440, marked by record high. On the other hand, support level is at 6,400, and the next level of support remains at 6,370-6,380, marked by recent fluctuations. The futures contract remains above short-term upward trend line, as we can see on the 15-minute chart:

Nasdaq100 futures contract - Nasdaq 100 index chart - NDX

Nasdaq100 futures contract – Nasdaq 100 index chart – NDX

Let’s take a look at Apple, Inc. stock (NASDAQ:) daily chart (chart courtesy of http://stockcharts.com). The price reached new record high a month ago, as it extended its uptrend following better-than-expected quarterly earnings release. Since then it fluctuated along the level of $170. The price bounced off support level of the early November daily gap up on Monday. Will it continue higher despite negative technical divergences?

Daily Apple

Daily Apple

The Dow Jones Industrial Average daily chart shows that blue-chip index reached new record high yesterday. 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. We can see two-month-long potential rising wedge topping pattern:

Daily DJIA index chart - DJIA, Blue-Chip Index

Daily DJIA index chart – DJIA, Blue-Chip Index

Concluding, the S&P 500 index was virtually flat on Wednesday, after reaching yet another new record high above 2,670 mark. Will uptrend continue? Or is this some topping pattern before 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.

(Why?)

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