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Paul Rejczak

Paul Rejczak

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: Negative Expectations Following Tuesday's Decline - New Downtrend Or Just Consolidation?

Stock Trading Alert originally published on October 13,  2016, 6:49 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 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 were mixed between -0.1% and +0.1% on Wednesday, as investors hesitated following Tuesday's decline. The S&P 500 index is the lowest since half of September. Is this a new downtrend or just more consolidation following June - July rally? The nearest important level of resistance is at around 2,140-2,150, marked by previous support level. The next resistance level is at 2,170, among others. On the other hand, support level is at around 2,120, marked by September local low. The market trades along medium-term upward trend line, as the daily chart shows:

S&P500 Daily Chart
Larger Image

Expectations before the opening of today's trading session are negative, with index futures currently down 0.5-0.6%. The European stock market indexes have lost 0.7-1.3% so far. Investors will now 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 extends its recent move down. The nearest important level of support is at around 2,100-2,110. On the other hand, resistance level remains at 2,130-2,140, marked by short-term consolidation, as we can see on the 15-minute chart:

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it extends its recent sell-off. The nearest important level of resistance is at around 4,800-4,820, marked by previous support level. On the other hand, support level is at 4,750-4,770, marked by some previous consolidation.

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market fluctuated yesterday, following its recent decline. For now, it looks like a flat correction within a short-term downtrend. 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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