Stock Trading Alert originally published on January 9, 2017, 6:55 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 U.S. stock market indexes gained between 0.3% and 0.9% on Friday, extending their short-term uptrend, as investors reacted to economic data announcements, including monthly jobs report release. The data came slightly worse than expected, but investors' sentiment remained bullish. All three major indexes have reached new record highs: S&P 500, Dow Jones Industrial Average, Nasdaq Composite. The DJIA has got very close to round 20,000 mark. The S&P 500 index has reached new all-time high at the level of 2,282.10. Will the market extend its year-long uptrend even further before some more meaningful downward correction? The next possible resistance level is at 2,300 mark. On the other hand, the nearest important support level is at around 2,260, marked by last week's consolidation. The next support level is at 2,230-2,240, marked by recent local low. We can see new long-term high within almost eight-year-long bull market from 2009 multi-year low at the level of 666.8. However, the index is barely above its month-long consolidation. It continues to trade along its medium-term upward trend line, as we can see on the daily chart:
Expectations before the opening of today's trading session are virtually flat, as investors take some short-term profits off the table, following Friday's advance. The main European stock market indexes have been mixed so far. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its short-term rally. For now, it looks like a downward correction following breakout above last week's Wednesday - Thursday consolidation. It may also be a downward reversal before some short-term correction following new year's rally. However, there have been no confirmed negative signals so far. The nearest important level of resistance remains at around 2,275, marked by local high. On the other hand, support level is at 2,255-2,265, marked by last week's consolidation. The next support level is at 2,230-2,240, marked by previous local lows. The futures contract trades above its recent consolidation, as the 15-minute chart shows:
The technology Nasdaq 100 futures contract has been relatively stronger than the broad stock market recently. It is currently trading within an intraday downtrend off new record high above 5,000 mark. The nearest important level of resistance is at around 5,015, marked by all-time high. On the other hand, support level is at 4,980-5,000, marked by previous level of resistance. For now, it looks like a relatively flat correction within a short-term uptrend. Will the technology Nasdaq 100 futures contract accelerate its medium-term uptrend? There have been no confirmed negative signals so far. However, we can see short-term overbought conditions:
Concluding, the broad stock market broke above its short-term consolidation on Friday, as the S&P 500 index reached new all-time high at 2,282.10. Will it continue higher before some more meaningful downward correction? There have been no confirmed negative signals so far. We still can see some medium-term overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on December 14 at 2,268.35 - daily opening price of the S&P 500 index). Stop-loss level remains 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).