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Paul Rejczak

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Stock Trading Alert: Short-Term Uncertainty As Stocks Hover Along Record Highs

Stock Trading Alert originally published on December 1,  2016, 6:55 AM:


 

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,240, and profit target at 2,060, S&P 500 index).

Our intraday outlook is 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 were mixed between -1.2% and 0.0% on Wednesday, extending their short-term consolidation following last week's advance, as investors reacted to economic data releases, among others. The S&P 500 index reached new record high at the level of 2,214.10, before closing down 0.3%. The nearest important level of resistance is at around 2,210-2,215. On the other hand, support level is at 2,190-2,200, marked by previous level of resistance. The next important level of support remains at 2,170-2,180. The market continues to trade along its medium-term upward trend line, as we can see on the daily chart:

S&P500 Daily Chart
Larger Image

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.3%. The European stock market indexes have lost 0.7-1.1% so far. Investors will now wait for some economic data announcements: Initial Claims at 8:30 a.m., Construction Spending, ISM Index at 10:00 a.m. The S&P 500 futures contract trades within an intraday consolidation, following an overnight decline. The nearest important level of resistance is at around 2,200, marked by recent support level. The next resistance level is at 2,210-2,215. On the other hand, support level is at 2,190, marked by some local lows:

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract is relatively weaker than the broad stock market, as it currently trades below its recent consolidation. The nearest important level of resistance is at around 4,830-4,850, marked by previous level of support. On the other hand, support level is at 4,800, among others, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market retraced some of its recent advance yesterday, as the S&P 500 index broke slightly below 2,200 mark. We still can see technical overbought conditions. Therefore, we continue to maintain our speculative short position (opened on November 16 at 2,177 - opening price of the S&P 500 index). Stop-loss level is at 2,240 and potential profit target is at 2,060 (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: 2,060; stop-loss level: 2,240
S&P 500 futures contract - short position: profit target level: 2,055; stop-loss level: 2,235
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $206; stop-loss level: $224
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $18.38; stop-loss level: $15.64 (calculated using trade's opening price on Nov 16 at $16.6).

Thank you.

 

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