Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with entry at 4,678 price level, with 4,820 as a stop-loss and 4,450 as a price target.
The S&P 500 continues to fluctuate along the 4,700 level. So is this a topping pattern or just a flat correction before another leg up?
The S&P 500 index extended its Monday’s decline yesterday, as it fell to the daily low of 4,652.66. But it closed 0.17% higher following an intraday rebound. The market rebounded to the 4,700 level again. The broad stock market keeps trading within an over two-week-long consolidation. For now, it looks like a flat correction within an uptrend. However, it may also be a topping pattern before some more meaningful downward reversal.
The nearest important support level remains at 4,630-4,650 and the next support level is at 4,600. On the other hand, the resistance level is at 4,700-4,750. The S&P 500 continues to trade along the 4,700 level, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Nasdaq Broke Below the Trend Line
Let’s take a look at the Nasdaq 100 chart. The technology index reached the new record high on Monday, led by the megacap tech stock rallies, but it reversed its intraday course and yesterday it fell below the 16,200 level. The index broke below its short-term upward trend line, as we can see on the daily chart:
Apple and Microsoft – a Potential Reversal
Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple accelerated its uptrend on Monday and Microsoft slightly extended its recent advance. Both reached the record highs before reversing lower. Yesterday they were mixed, and today we may see some more short-term uncertainty.
Futures Contract Remains Below the Trend Line
Let’s take a look at the hourly chart of the S&P 500 futures contract. The market reached the new record high on Monday, but then it quickly got back below the 4,700 level and it broke below its month-long upward trend line.
It looks like a topping pattern following the advance from the early October lows. Therefore, we decided to open a speculative short position yesterday (4,678 price level). (chart by courtesy of http://tradingview.com):
Conclusion
The S&P 500 index is expected to open 0.4% lower this morning following a series of economic data releases. The market will wait for some more economic data releases - the Core PCE Price Index, Personal Income/ Personal Spending at 10:00 a.m., and the FOMC Meeting Minutes at 2:00 p.m. We may see a short-term consolidation ahead of tomorrow’s holiday break and the long holiday weekend.
So overall, the broad stock market may be trading within a topping pattern. However there have been no confirmed negative signals so far.
Nevertheless, we decided to open a speculative short position yesterday (4,678 price level), and we are expecting a 5% correction from the current levels.
Here’s the breakdown:
- The S&P 500 backed from the new record high on Monday and it looked like a short-term or medium-term topping pattern.
- A speculative short position is justified from the risk/reward perspective.
- We are expecting a 5% 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 4,678 price level, with 4,820 as a stop-loss and 4,450 as a price target.
Thank you.
Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care
