Stock Trading Alert originally published on February 6, 2017, 6:56 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 between 0.3% and 0.9% on Friday, breaking above their recent trading range, as investors reacted to better-than-expected monthly jobs report release. The S&P 500 index got closer to its January 26 all-time high of 2,300.99 again. It has closed above its last Monday's daily gap down of 2,286.01-2,291.62. The Dow Jones Industrial Average is back above 20,000 mark, and the technology Nasdaq Composite Index remains above its support level of 5,600. Technology stock were relatively weaker than the broad stock market on Friday, as investors reacted to worse-than-expected quarterly earnings release from the online retailer Amazon. 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 is currently at around 2,300 marked by record high. On the other hand, level of support is at 2,280-2,290, marked by recent fluctuations, and the next support level is at 2,260-2,270, among others. We can see some short-term volatility following November - January move up. Is this 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 virtually flat, as investors take some short-term profits off the table. The European stock market have been mixed so far. Investors will wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation, following Friday's rally. The nearest important resistance level is at around 2,295-2,300. On the other hand, support level is at 2,285-2,290, marked by some previous local highs. For now, it looks like a relatively flat correction within a short-term uptrend. The futures contract broke above its recent consolidation along the level of 2,270, as the 15-minute chart shows:
The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation, after Friday's move up. The technology sector stocks are relatively weaker than the broad stock market recently, following the above-mentioned last Thursday's worse-than-expected quarterly earnings release from Amazon. The nearest important level of resistance is at around 5,150-5,170, marked by record highs. On the other hand, support level is at 5,100-5,120, marked by some recent local lows. Overall, there has been no clear direction since Wednesday. Is this a flat correction within new downtrend following Monday's reversal or just consolidation before another leg up?
Concluding, the broad stock market broke above its short-term consolidation on Friday, as investors' sentiment improved following better-than-expected monthly Nonfarm Payrolls data release. Will this uptrend extend higher or is this just some short-term consolidation after three-month long rally from Presidential Elections' local low in November of 2016? Or is this some topping pattern ahead of a more meaningful downward correction? Potential upside seems limited, and the S&P 500 index may retrace some of its November - January uptrend. It may even reverse its year-long uptrend, as investors' sentiment readings remain very bullish. 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).