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Paul Rejczak

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Stock Trading Alert: More Downtrend Ahead Or Volatile Bottoming Action Before Rebound?

Stock Trading Alert originally published on January 14, 2016, 6:36 AM:


 

Briefly: In our opinion, speculative long positions are favored (with stop-loss at 1,840, and profit target at 1,990, S&P 500 index)

Our intraday outlook is now bullish, and our short-term outlook is bullish. However, our medium-term outlook remains bearish, as the S&P 500 index extends its lower highs, lower lows sequence:

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

The U.S. stock market indexes lost between 2.2% and 3.5% on Wednesday, extending their short-term downtrend, as investors reacted to oil prices decline, economic data releases, among others. The S&P 500 index broke below the level of 1,900 and got closer to its last year's August - September lows. The nearest important level of support is at around 1,870, marked by those local lows. On the other hand, resistance level is at 1,900-1,920, and the next important level of resistance is at around 1,950, marked by yesterday's local high. There have been no confirmed positive signals so far. However, we can see technical oversold conditions accompanied by an increased short-term volatility, which may lead to an upward correction or downtrend reversal at some point. The market trades within last year's volatile consolidation along 1,900-2,000. Will it break below and extend its medium-term downtrend? Overall, the downward momentum remains strong, 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 negative, with index futures currently down 0.1-0.3%. The European stock market indexes have lost 2.1-3.3% so far. Investors will wait for the Initial Claims number release at 8:30 a.m. The S&P 500 futures contract trades within an intraday downtrend, as it slightly extends its recent move down. The nearest important level of resistance is at around 1,900-1,920. On the other hand, support level is at 1,870. There have been no confirmed positive signals so far. However, we can see short-term oversold conditions:

S&P500 Futures 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades along the level of 4,160. The nearest important level of resistance is at 4,200-4,210, among others. The market remains close to its downtrend's lows. We can see short-term oversold conditions accompanied by an increased volatility. For now, it looks like some sort of a bottoming pattern before upward correction or downtrend reversal:

NASDAQ 100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market extended its short-term downtrend, as the S&P 500 index accelerated downwards yesterday. It got closer to last year's August - September lows and potential support level of 1,870. We can see short-term technical oversold conditions accompanied by an increased volatility which may lead to an upward correction or downtrend reversal. There have been no confirmed positive signals so far. However, we decided to open a speculative long position at the opening of today's trading session (S&P 500 index). We expect an upward correction or short-term downtrend reversal. Stop-loss level is at 1,840, and potential profit target level is at 1,990, marked by resistance level of 1,980-2,000. 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.

Thank you.

 

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