Stock Trading Alert: New Downtrend Or Just Quick Downward Correction Before Another Leg Up?
Stock Trading Alert originally published on December 15, 2016, 6:52 AM:
Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).
Our intraday outlook remains 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 lost 0.3-0.8% on Wednesday, retracing some of their recent move up, as investors reacted to the FOMC Rate Decision announcement. The S&P 500 index remains relatively close to its record high of 2,277.53. The nearest important level of resistance is at around 2,275-2,280. The next resistance level is at 2,300 mark. On the other hand, support level is at 2,240-2,250, marked by previous level of resistance. The next important support level remains at 2,200-2,220. The market broke above its medium-term upward trend line recently, as we can see on the daily chart:
Expectations before the opening of today's trading session are slightly positive, with index futures currently up 0.1-0.2%. The main European stock market indexes have gained 0.2-0.6% so far. Investors will wait for series of economic data announcements: Consumer Price Index, Initial Claims, Philadelphia Fed, Empire Manufacturing number at 8:30 a.m., NAHB Housing Market Index at 10:00 a.m. The S&P 500 futures contract trades within an intraday consolidation, following yesterday's volatility. The nearest important resistance level is at around 2,270, marked by recent consolidation. On the other hand, support level remains at 2,250, among others.
The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation following yesterday's move down. The nearest important resistance level is at around 4,950-4,960, marked by new record high. On the other hand, support level is at 4,900-4,920, marked by previous level of resistance, as the 15-minute chart shows:
Concluding, the broad stock market retraced some of its recent rally yesterday, following Fed Rate Decision release. For now, it looks like a downward correction within a short-term uptrend. However, we still can see technical overbought conditions. Therefore, we continue to maintain our speculative short position (opened yesterday at 2,268.35 - opening price of the S&P 500 index). Stop-loss level is at 2,330 and potential profit target is at 2,150 (S&P 500 index). You can trade S&P 500 index using futures contracts (S&P 500 futures contract - SP, E-mini S&P 500 futures contract - ES) or an ETF like the SPDR S&P 500 ETF - SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.
To summarize: short position in S&P 500 index is justified from the risk/reward perspective with the following entry prices, stop-loss orders and profit target price levels:
S&P 500 index - short position: profit target level: 2,150; stop-loss
S&P 500 futures contract (December) - short position: profit target level: 2,150; stop-loss level: 2,330
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $215; stop-loss level: $233
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade's opening price on Dec 14 at $14.78).