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Paul Rejczak

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Stock Trading Alert: New Downtrend Or Just More Consolidation Before Another Leg Up?

Stock Trading Alert originally published on August 25,  2016, 6:45 AM:


 

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,210, and profit target at 2,050, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook is now 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 main U.S. stock market indexes lost between 0.4% and 0.7%, as investors took some more short-term profits off the table. The S&P 500 index  remains within a few-week long consolidation following its June - July rally. It is still relatively close to last week's new all-time high of 2,193.81. The nearest important level of resistance is at around 2,190-2,200. On the other hand, support level is at 2,165-2,170, marked by short-term local lows. The next support level remains at 2,150. Will the market continue higher? Or is this some kind of a topping pattern before downward reversal? There have been no confirmed negative signals so far:

S&P500 Futures Daily Chart
Larger Image

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2%. The European stock market indexes have lost 0.3-0.8% so far. Investors will now wait for some economic data announcements: Initial Claims, along with Durable Orders number at 8:30 a.m. The S&P 500 futures contract trades within an intraday consolidation, as it currently trades close to yesterday's local low. The nearest important level of support is at around 2,170. On the other hand, resistance level is at 2,175-2,180, among others, as the 15-minute chart shows:

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 4,780. The nearest important level of resistance is at around 4,790-4,800, marked by previous level of support. On the other hand, support level is at 4,770, marked by yesterday's daily low, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market retraced its recent move up yesterday, as investors took profits off the table. Is this a topping pattern or just consolidation following recent move up? We still can see overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on July 18th at 2,162, S&P 500 index). Stop-loss level is at 2,210 and potential profit target is at 2,050 (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.

Thank you.

 

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