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.
The stock market extended its record-breaking rally yesterday, as the S&P 500 got closer to 4,600 level. Will the uptrend continue?
The S&P 500 index gained 0.18% on Tuesday, Oct. 26 after reaching the new record high level of 4,598.53. The stock market is reacting to quarterly corporate earnings releases. Today we will get the releases from BA, KO, EBAY and on tomorrow from AMZN, among others. However, the market seems overbought in the short-term and we may see a consolidation or a downward correction in the near term.
The nearest important support level is at 4,550 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 remains below a very steep week-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Nasdaq Reached Marginally Higher New Record High
Let’s take a look at the Nasdaq 100 chart. The technology index remained relatively weaker than the broad stock market recently, as it was still trading well below the early September record high of 15,701.40. But yesterday it reached the new record high of 15,710.79 before closing just 0.3% higher. The nearest important resistance level is at 15,700, and the support level is now at 15,500, as we can see on the daily chart:
Dow Jones Went Also Higher
The Dow Jones Industrial Average reached the new record high of 35,892.92, as it got closer to the 36,000 mark. The blue-chip index closed virtually flat following some intraday profit-taking action yesterday. The support level is now at around 35,500-35,600, marked by the previous local highs, as we can see on the daily chart:
Apple Is Still At the Resistance Level
Apple stock weighs around 6.2% in the S&P 500 index, so it is important for the whole broad stock market picture. The stock broke above its short-term resistance level of around $144-145 recently. However, the nearest important resistance level remains at $148-150. The stock is still relatively weaker than the broad stock market, as it is trading along the July-August local highs.
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.
The market seems overbought and poised for a short-term 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 reached the new record high yesterday, but it closed just 0.18% higher following an intraday profit-taking action. Today the main indices are expected to open 0.1-0.2% higher. The market seems overbought in the short term and we may see a consolidation or a downward correction.
We decided to open a speculative short position last week on Friday at the 4,540 price level. We are expecting a 3% correction from the current levels.
Here’s the breakdown:
- The S&P 500 has retraced all of its downward correction from the Sep. 2 local high last week and it keeps reaching new record highs.
- A speculative short position (4,540 price level) is justified from the risk/reward perspective.
- We are expecting a 3% 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
Sunshine Profits: Effective Investments through Diligence and Care
