Stock Trading Alert originally published on January 26, 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 gained between 0.8% and 1.0% on Wednesday, extending their short-term uptrend, as investors' sentiment remained very bullish following Tuesday's break out of short-term consolidation. The S&P 500 index has reached yet another new all-time high at the level of 2,299.55. It got close to 2,300 mark. The Dow Jones Industrial Average has reached new all-time high above the level of 20,000 and the technology Nasdaq Composite index has continued its rally above the level of 5,600. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? The nearest important resistance level of the S&P 500 index remains at 2,300 mark. On the other hand, the nearest support level is at around 2,285-2,290, marked by yesterday's daily gap up of 2,284.63-2,288.88. The next support level is at 2,255-2,260, marked by recent local lows. We can see new long-term highs within almost eight-year-long bull market from 2009 multi-year low of 666.8. Is this some kind of a topping pattern before downward reversal? The S&P 500 index still trades along medium-term upward trend line, as we can see on the daily chart:
Expectations before the opening of today's trading session are positive, with index futures currently up 0.1%-0.2%, as investors' sentiment improves following overnight global stock markets rally. The European stock market indexes have gained 0.2-0.4% so far. Investors will now wait for series of quarterly corporate earnings releases. They will also wait for some economic data announcements: Initial Claims at 8:30 a.m., New Home Sales, Leading Indicators at 10:00. The Leading Indicators release is a compendium of previously announced economic indicators: jobless claims, new orders, money supply, average workweek, building permits, stock prices. The S&P 500 futures contract trades within an intraday consolidation following an overnight move up. For now, it looks like another relatively flat correction within a short-term uptrend. The nearest important level of resistance is at around 2,300. On the other hand, support level is at 2,285-2,290, marked by some recent fluctuations. The next support level is at 2,275-2,280, among others. There have been no confirmed negative signals so far. The futures contract broke above its short-term consolidation, as the 15-minute chart shows:
The technology Nasdaq 100 futures contract remains relatively stronger than the broad stock market indices, as it currently trades close to new all-time high above 5,150 mark. The nearest important support level is at 5,130-5,150, marked by some short-term fluctuations. The next support level is at 5,100, marked by previous level of resistance. We still can see short-term technical overbought conditions. However, there have been no confirmed negative signals so far. Technology stocks accelerated their medium-term uptrend:
Concluding, the broad stock market extended its rally yesterday, as the S&P 500 index got closer to 2,300 mark. Will stocks continue higher following quarterly corporate earnings releases? There have been no confirmed negative signals so far. However, we still can see 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).