Stocks Retrace Their Recent Weakness, New Uptrend?

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year's all-time high:

Intraday outlook (next 24 hours): bearish

Short-term outlook (next 1-2 weeks): bearish

Medium-term outlook (next 1-3 months): neutral

Long-term outlook (next year): neutral

The U.S. stock market indexes gained between 0.4% and 1.0% on Friday, as investors' sentiment improved following better-than-expected monthly jobs data release. The S&P 500 index got close to its late June local low at around 2,405 on Thursday. It has bounced off that support level. The index is now trading just 1.2% below its June 19 all-time high of 2,453.82. It reached new record high after a breakout above short-term consolidation along the level of 2,420-2,440. Stocks have rebounded sharply following their mid-May quick two-session sell-off and continued over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average gained 0.4% on Friday, as it bounced off support level of 21,300 again. The technology Nasdaq Composite was relatively stronger than the broad stock market, as it gained 1.0%. It has retraced its Thursday's move down. The nearest important support level of the S&P 500 index is at around 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. On the other hand, level of resistance is at 2,425-2,430, marked by recent fluctuations. The next resistance level remains at 2,450-2,455, marked by all-time high. There have been no confirmed negative signals so far. However, we can see overbought conditions and negative technical divergences. The S&P 500 index is trading within its a month-long consolidation, as we can see on the daily chart:

Mixed Expectations

Expectations before the opening of today's trading session are mixed, with index futures currently between 0.0% and +0.4% vs. their Friday's closing prices. The European stock market indexes have gained 0.3-0.5% so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday consolidation following an overnight move up. The nearest important level of resistance is at around 2,430, marked by some previous local highs. The next resistance level is at 2,440-2,450, marked by all-time high. On the other hand, support level is at 2,400-2,410, marked by last week's local low. Which direction is next? Will the market break above short-term consolidation and continue its eight-year-long bull market?

Nasdaq Fluctuates

The technology Nasdaq 100 futures follows a similar path, as it trades within an intraday consolidation after an overnight advance. The Nasdaq remains within a short-term consolidation after recent move down. The nearest important level of resistance is at around 5,680-5,700, marked by recent local high. On the other hand, support level is at 5,650-5,660, and the next level of support remains at 5,550-5,600, as the 15-minute chart shows:

Concluding, the S&P 500 index retraced its Thursday's weakness on Friday, as investors reacted to better-than-expected economic data releases. Will the broad stock market break above short-term consolidation? There have been no confirmed negative signals so far. However, we still can see negative technical divergences, along with some medium-term overbought conditions.

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Paul Rejczak

Stock Trading Strategist

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