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Paul Rejczak

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Stock Trading Alert: New Record High, SP500 At 2,400 Mark

Stock Trading Alert originally published on March 2,  2017, 6:55 AM:


 

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P 500 index).

Our intraday outlook is now 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 1.1% and 1.5% on Wednesday, accelerating their uptrend, as investors reacted to Tuesday's Donald Trump's address to Congress, economic data releases. The S&P 500 index has reached new all-time high at the level of 2,400.98. The Dow Jones Industrial Average broke above the level of 21,000, and the technology Nasdaq Composite index broke above 5,900 mark. All three major stock market indexes trade at new records highs. The nearest important level of support of the S&P 500 index is at around 2,365-2,380, marked by yesterday's daily gap up of 2,367.79-2,380.13. The next support level is at 2,350-2,355, marked by previous daily gap up of 2,351.16-2,354.91. The support level is also at around 2,320. On the other hand, the nearest important level of resistance is at 2,400 mark. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? We can see some short-term volatility following three-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerates, and it looks like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index continues to trade above its medium-term upward trend line, 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. The European stock market indexes have gained 0.1% so far. Investors will now wait for the Initial Claims number release at 8:30 a.m. The market expects that it was at 244,000 last week. The S&P 500 futures contract trades within an intraday consolidation, following relatively small downward correction within a short-term uptrend. The nearest important level of resistance is at around 2,400, marked by new record high. On the other hand, support level is at 2,370-2,375, marked by previous level of resistance. There have been no confirmed negative signals so far. However, we still can see short-term overbought conditions, along with negative technical divergences:

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. It has reached new all-time high yesterday, just below 5,400 mark. The nearest important support level is at around 5,350-5,360 marked by previous resistance level, and the next level of support remains at 5,280-5,300. On the other hand, potential resistance level is at 5,400. The futures contract trades within a short-term uptrend, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market accelerated its uptrend yesterday following a breakout above recent consolidation. The S&P 500 index gained 1.4%, as investors reacted to Tuesday's Donald Trump's address to Congress. Will the uptrend continue even further despite some clear short-term overbought conditions? Or is this a topping pattern before downward correction? 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 Wednesday, February 15 at 2,335.58 - opening price of the S&P 500 index). Stop-loss level is at 2,410 and potential profit target is at 2,200 (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: 2,200; stop-loss level: 2,410
S&P 500 futures contract (March) - short position: profit target level: 2,197; stop-loss level: 2,407
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $220; stop-loss level: $241
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98

Thank you.

 

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