Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with an entry at 4,435 price level, with a new stop-loss level of 4,550 (we decided to move it a bit higher to keep our position in the market and to maintain a favorable risk/reward ratio vs. the mentioned entry price level; that's the only time we adjust the stop-loss level) and 4,200 as a price target.

Stocks went down on Thursday following tragic Afghan news and uncertainty surrounding the Fed’s tapering plans. Will the S&P 500 Get Back to 4,400?

The S&P 500 index lost 0.58% on Thursday as it bounced from the 4,500 level. On Wednesday the index reached a new record high of 4,501.71, and yesterday it traded more than 30 points lower. Investors are waiting for a speech from Fed Chair Powell at Jackson Hole Symposium. Will it be a bullish event? The market remains elevated following the recent run-up, so we may see a profit-taking action at some point.

The nearest important support level of the broad stock market index is still at 4,450. On the other hand, the resistance level is at 4,500. The S&P 500 bounced from its four-month-long upward trend line last week, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Dow Jones is Still Relatively Weaker

Let’s take a look at the Dow Jones Industrial Average chart. The blue-chip index is trading within a potential rising wedge downward reversal pattern. Recently it was relatively weaker, as it didn’t reach a new record high like the S&P 500 and Nasdaq. The support level remains at around 35,000, as we can see on the daily chart:

Apple Further Away From $150 Mark

Apple stock got back to the resistance level of $150-152, marked by the August 17 record high of $151.68 recently. We can still see negative technical divergences between the price and indicators. Overall, it looks like a medium-term topping pattern. The two-month-long upward trend line remains at around $145.

Short Position is Closer to Break-Even Point

Let’s take a look at the hourly chart of the S&P 500 futures contract. We opened a short position on August 12 at the level of 4,435. The position was profitable before the recent run-up. 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 retreated from the 4,500 level yesterday, as investors took profits off the table following the recent record-breaking run-up. The market will most likely turn south and extend its weeks-long consolidation. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

• The market retreated from its new record high and the 4,500 mark.
• Our speculative short position is still justified from the risk/reward perspective.
• We are expecting a 5% or bigger correction from the new record high.

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 an entry at 4,435 price level, with a new stop-loss level of 4,550 (we decided to move it a bit higher to keep our position in the market and to maintain a favorable risk/reward ratio vs. the mentioned entry price level; we will adjust a stop-loss level only once) and 4,200 as a price target.

Thank you.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care