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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…

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Stock Trading Alert: Negative Expectations Following Friday's Fluctuations

Stock Trading Alert originally published on March 27,  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 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 were mixed between -0.3% and +0.2% on Friday, extending their short-term fluctuations, as investors reacted to economic data releases, among others. Traders took profits off the table on Tuesday after interest rates' increase. The S&P 500 index remained more than 2% below its March 1 all-time high of 2,400.98. The Dow Jones Industrial Average closed below 20,600 mark, and the technology Nasdaq Composite index remained above the level of 5,800. Overall, stocks continued to trade below their month-long consolidation along new record highs. Is this just correction or a new downtrend? For now, it looks like a downward correction within medium-term uptrend. The nearest important level of support of the S&P 500 index is at around 2,335-2,340, marked by some previous local lows. The next support level remains at 2,320, marked by February 13 daily gap up of 2,319.23-2,321.42, among others. The support level is also at around 2,300, marked by December - January local highs. On the other hand, the nearest important level of resistance is now at around 2,350-2,360, marked previous level of support. The next resistance level is at 2,390-2,400, marked by all-time high. We can see some short-term volatility following four-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerated on March 1 and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index trades at its five-month-long 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 negative, with index futures currently down 0.7-0.8%. The European stock market indexes have lost 0.3-0.8% so far. There will be no important economic announcements today. However, investors will wait for some economic data releases tomorrow - Wholesale Inventories, Consumer Confidence. The S&P 500 futures contract trades within an intraday downtrend, as it breaks below its short-term consolidation today. The nearest important level of resistance is at around 2,335-2,340, marked by recent local lows. The next resistance level is at 2,350-2,355, marked by local high. The resistance level is also at 2,360-2,365, marked by previous consolidation. On the other hand, support level is at 2,300-2,320, marked by previous local high, among others. The market trades within a short-term downtrend, following breakdown below recent trading range. Will it continue lower, or is this just a quick downward correction within five-month-long rally off November low?

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within short-term consolidation after an overnight move down. However, it remains above its previous local low above the level of 5,300. Is this a new downtrend or just downward correction? The nearest important support level is at 5,300-5,320. On the other hand, resistance level is at 5,350-5,370, marked by some recent fluctuations, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market continued to fluctuate on Friday, as the S&P 500 index traded along 2,350 mark. It remained around 2% below its early March record high. There have been no confirmed short-term positive signals so far. We still can see medium-term overbought conditions along with negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on 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 (June) - 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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