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Stock Trading Alert: Mixed Expectations As Technology Stocks Reach New Record Highs

Stock Trading Alert originally published on March 30,  2017, 6:58 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 main U.S. stock market indexes were mixed between -0.2% and +0.4% on Wednesday, as investors continued to hesitate following last week's move down. The S&P 500 index broke above its recent local highs on Tuesday, as it retraced some of the decline. It is currently less than 2% below March 1 all-time high of 2,400.98. The Dow Jones Industrial Average broke below 20,700 again, and relatively stronger technology Nasdaq Composite index got closer to the level of 5,900. Overall, stocks retraced some of their recent move down off new record highs recently. Is this a new uptrend or just upward correction within new medium-term downtrend? The nearest important level of support of the S&P 500 index remains at around 2,335-2,340, marked by some previous local lows. The next support level is at 2,320, marked by February 13 daily gap up of 2,319.23-2,321.42 and Monday's local low. 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 2,360-2,365, marked by 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 continues to trade along 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, with index futures currently down 0.1%. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: GDP - Third Estimate number, Initial Claims at 8:30 a.m. The market expects that the U.S. Gross Domestic Product grew 2.0% in the fourth quarter of 2016. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its recent move up. The nearest important level of resistance is at around 2,360-2,365, marked by local high and some previous short-term consolidation. The resistance level is also at 2,380-2,400, marked by topping consolidation along new record high. On the other hand, support level is at 2,340, marked by previous level of resistance. The next support level is at 2,300-2,320, marked by previous local high, Monday's local lows. The market trades within a short-term consolidation, following last week's move down. Will it continue lower, or is this just a quick downward correction before another medium-term leg higher?

S&P500 15-Minute Chart
Larger Image

The technology Nasdaq 100 futures contract is relatively stronger than the broad stock market, as it currently trades above 5,400 mark. It has reached new record high slightly above the level of 5,450. The nearest important level of resistance is at around 5,440-5,450, marked by all-time high. On the other hand, support level is at 5,370-5,400, marked by previous level of resistance. The next important level of support is at 5,300-5,320, marked by Monday's local lows, as the 15-minute chart shows:

NASDAQ100 Futures 15-Minute Chart
Larger Image

Concluding, the broad stock market continued to fluctuate on Wednesday, as the S&P 500 remained slightly below its Tuesday's daily high. Is this a new uptrend or just upward correction within an almost month-long downtrend? 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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