• 287 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 289 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 689 days Could Crypto Overtake Traditional Investment?
  • 694 days Americans Still Quitting Jobs At Record Pace
  • 696 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 699 days Is The Dollar Too Strong?
  • 699 days Big Tech Disappoints Investors on Earnings Calls
  • 700 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 702 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 706 days Crypto Investors Won Big In 2021
  • 706 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 707 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 709 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 710 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 713 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 714 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 714 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 716 days Are NFTs About To Take Over Gaming?
Paul Rejczak

Paul Rejczak

Writer, Sunshine Profits

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…

Contact Author

  1. Home
  2. Markets
  3. Other

Stock Trading Alert: New Short-Term Downtrend Or Just Quick Correction?

Stock Trading Alert originally published on December 29,  2016, 6:54 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 lost 0.6-0.8% on Wednesday, breaking below their recent consolidation, as investors took profits off the table following November - December rally. The S&P 500 index remains close to its nearest important support level of 2,250. The next important support level is at 2,200-2,220. On the other hand, resistance level is at around 2,275-2,280, marked by December 13th record high of 2,277.53. The market continues to trade along its medium-term upward trend line. Is this a topping pattern or just flat correction before another leg up? There have been no confirmed negative signals so far. However, we can see technical overbought conditions along with some negative divergences:

S&P500 Daily Chart
Larger Image

Expectations before the opening of today's trading session are virtually flat. The European stock market indexes have lost 0.1-0.3% 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 consolidation following yesterday's move down. The nearest important resistance level is at around 2,250, and the next level of resistance is at 2,265-2,270, marked by previous consolidation, along with some local highs. On the other hand, support level is at 2,220-2,230. For now, it looks like a flat correction within a short-term downtrend. The market is below its recent trading range, 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 currently trades within an intraday consolidation along the level of 4,920. The nearest important support level is at 4,900. On the other hand, resistance level is at 4,930-4,950, marked by previous level of support, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market broke below its short-term consolidation yesterday, as investors took profits off the table. However, the S&P 500 index remains close to 2,250 mark, while continuing to trade along its medium-term upward trend line. 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.

 

Back to homepage

Leave a comment

Leave a comment