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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: More Short-Term Fluctuations Along Record Highs - Which Direction Is Next?

Stock Trading Alert originally published on December 27,  2016, 6:52 AM:


 

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).

Our intraday outlook remains 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 main U.S. stock market indexes gained 0.1% on Friday, extending their short-term consolidation, as investors continued to hesitate following early December rally. The S&P 500 index continues to trade close to its record high of 2,277.53, as it remains above 2,250 mark. For now, it looks like a flat correction within a medium-term uptrend. The nearest important level of resistance is at around 2,275-2,280. The next resistance level is at 2,300 mark. On the other hand, support level is at 2,240-2,250, marked by previous level of resistance. The next important support level remains at 2,200-2,220. The market broke above its medium-term upward trend line recently, as we can see on the daily chart:

S&P500 Daily Chart
Larger Image

Expectations before the opening of today's trading session are virtually flat, with index futures currently up 0.1%. The European stock market indexes have gained 0.1% so far. Investors will now wait for some economic data announcements: Case-Shiller 20-city Index at 9:00 a.m., Consumer Confidence number at 10:00 a.m. The S&P 500 futures contract trades within an intraday uptrend following Friday's bounce off support level at 2,250-2,255. The nearest important level of resistance is at around 2,265, marked by previous consolidation. The next resistance level is at 2,270-2,275, marked by all-time high. On the other hand, support level remains at 2,250, marked by some recent local lows. There have been no confirmed negative signals so far. Is this a topping pattern or just short-term consolidation before another leg up?

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday uptrend. The nearest important level of resistance is at around 4,950-4,970, marked by record highs. The next resistance level is at 5,000 mark. On the other hand, support level is at 4,900-4,920, marked by short-term local lows, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market remained within its short-term consolidation on Friday, as the S&P 500 index gained 0.1% following bounce off support level at around 2,250. Is this a flat correction within an uptrend or some topping pattern before downward reversal? We still can see technical overbought conditions. Therefore, we continue to maintain our speculative short position (opened on December 14 at 2,268.35 - opening price of the S&P 500 index). Stop-loss level is at 2,330 and potential profit target is at 2,150 (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: 2,150; stop-loss level: 2,330
S&P 500 futures contract (March 2017) - short position: profit target level: 2,145; stop-loss level: 2,325
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $214; stop-loss level: $232
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade's opening price on Dec 14 at $14.78).

Thank you.

 

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