Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with entry at 4,540 price level, with 4,630 as a stop-loss and 4,400 as a price target.
Stocks backed from their Tuesday’s new record high yesterday. Was it a downward reversal or just a short-term profit-taking action?
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The S&P 500 index lost 0.51% on Wednesday, Oct. 27, as it got close to the 4,550 level. The broad stock market’s gauge retraced some of its record-breaking rally following bouncing from its Tuesday’s new record high of 4,598.53. The stock market is still reacting to quarterly corporate earnings releases. Today we will get the release from AAPL, AMZN, among others. The market seemed overbought in the short-term and we saw a downward correction yesterday. The index fell to its early September local high of around 4,550. There may be a short-term consolidation following the recent advances.
The nearest important support level is at 4,550, and the next support level is at 4,520-4,525, marked by the last Wednesday’s daily gap up of 4,520.40-4,524.40. On the other hand, the resistance level is at around 4,600, marked by the new record high. Despite reaching new record highs, the S&P 500 remained below a very steep week-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Is a Short Position Still Justified?
Let’s take a look at the hourly chart of the S&P 500 futures contract. Last week, the market broke above its downward trend line and it broke above its previous local high of around 4,470. The nearest important resistance level is now at around 4,600. Since Friday, the price is trading along a short-term upward trend line.
The market seems overbought and poised for a correction. Therefore, we still think that a speculative short position is justified from the risk/reward perspective. (chart by courtesy of http://tradingview.com):
Conclusion
The S&P 500 index retraced some of its recent rally yesterday, as it closed 0.5% lower. For now, it looks like a correction within an uptrend. However, the market is still overbought and we may see a bigger downward correction. There may be a profit-taking action following the quarterly earnings releases. Today the main indices are expected to open 0.3-0.6% higher after the worse than expected Advance GDP data release (+2.0% vs. +2.6%), and we will likely see an intraday consolidation.
Here’s the breakdown:
- The S&P 500 bounced from the 4,600 level on Tuesday and it retraced some of the rally yesterday.
- A speculative short position (4,540 price level) is still justified from the risk/reward perspective.
- We are expecting a 3% or higher correction from the current levels.
As always, we’ll keep you, our subscribers, well-informed.
Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with entry at 4,540 price level, with 4,630 as a stop-loss and 4,400 as a price target.
Thank you.
Paul Rejczak,
Stock Trading Strategist
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