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Paul Rejczak

Paul Rejczak

Writer, Sunshine Profits

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…

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Stock Trading Alert: Mixed Expectations Following Last Week's Sharp Decline - Reversal Or Just Pause?

Stock Trading Alert originally published on January 11, 2016, 6:56 AM:


 

Briefly: In our opinion, no speculative positions are justified.

Our intraday outlook is now neutral, and our short-term outlook is neutral:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): neutral
Medium-term outlook (next 1-3 months): bearish
Long-term outlook (next year): bullish

The U.S. stock market indexes lost 0.8-1.1% on Friday, extending their recent sell-off, as investors reacted to global stock markets' decline, monthly jobs data release, among others. The S&P 500 index got closer to its last year's August - September lows. The nearest important level of support is at around 1,870-1,900. On the other hand, resistance level is at 1,980-2,000, marked by recent local lows. There have been no confirmed positive signals so far. However, we can see short-term oversold conditions which may lead to an upward correction at some point. The market continues to trade below last year's February - August consolidation. It has become a crucial medium-term resistance level, as we can see on the daily chart:

S&P500 Futures Daily Chart
Larger Image

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 been mixed so far. The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of Friday's sell-off. The nearest important level of resistance is at around 1,930, marked by recent local lows. On the other hand, support level is at 1,890-1,900. For now, it looks like another upward correction within a short-term downtrend. There have been no confirmed downtrend reversal signals so far. However, we can see oversold conditions:

S&P500 Futures 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its recent move down. The nearest important level of support is at 4,200-4,220. On the other hand, resistance level is at 4,280-4,300, among others. Is this just a flat correction following recent sell-off or some bottoming pattern before a downtrend reversal? The market continues its lower highs - lower lows sequence so far:

NASDAQ 100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market extended its short-term downtrend on Friday, as the S&P 500 index got closer to the level of 1,900. It currently trades 10 percent below its last year's May all-time high of 2,134.72, so technically, it is still just a correction following long-term bull market. Will it continue towards last year's August - September lows? There have been no confirmed positive signals so far, however, we can see some short-term technical oversold conditions, which may lead to an upward correction at some point. Therefore, we decided to close our profitable speculative short position (2,077.34, S&P 500 index) on Thursday. It has been closed at the opening of Thursday's cash market trading session (S&P 500 index at around 1,965, following temporary opening price of 1,985.32, S&P 500 futures contract 1,947.90 at 9:30 a.m.). Overall, we gained around 112 index points on that trade. We prefer to be out of the market, avoiding low risk/reward ratio trades. We will let you know when we think it is safe to get back in the market.

Thank you.

 

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