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Paul Rejczak

Paul Rejczak

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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: Positive Expectations Following Last Week's Decline, But Will Stocks Continue Higher?

Stock Trading Alert originally published on December 5,  2016, 6:51 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 virtually flat on Friday, as investors hesitated following recent stock prices decline, economic data releases. The S&P 500 index remained below the level of 2,200. However, it is still close to its Wednesday's new all-time high of 2,214.10. The nearest important level of resistance is at 2,200, and the next resistance level is at 2,210-2,215, marked by record high. On the other hand, support level is at 2,190, 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 positive, with index futures currently up 0.4-0.5%. The European stock market indexes have gained 0.4-1.4% so far. Investors will now wait for the ISM Services number release at 10:00 a.m. The S&P 500 futures contract trades within an intraday uptrend, as it retraces its recent move down. The nearest important level of resistance is at around 2,210-2,215, marked by record highs. On the other hand, support level remains at 2,180, marked by local lows:

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it currently retraces its recent move down. The nearest important level of resistance is at around 4,780-4,800, and support level remains at 4,700-4,720, marked by short-term local lows, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market continued to fluctuate on Friday, as the S&P 500 index remained 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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