Briefly:

Intraday trade: Our Tuesday's neutral intraday outlook has proved partly accurate. The S&P 500 index closed neutral (+0.1%) vs. its Monday's closing price, following much lower opening of the trading session and a relatively big intraday rally. Stocks will probably fluctuate or retrace some of their yesterday's move up today. Therefore, we prefer to be out of the market again, avoiding low risk/reward ratio trades.

Medium-term trade: In our opinion, short position is favored (opened on June 5 at 2,437.83, with stop-loss at 2,510, and profit target at 2,300, S&P 500 index).

Our intraday outlook remains neutral, and our short-term outlook is bearish, as we expect downward correction. Our medium-term outlook remains bearish:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): bearish

The U.S. stock market indexes gained between 0.1% and 0.3% on Tuesday, following much lower opening of the trading session, as investors' sentiment improved. The S&P 500 index bounced off support level at around 2,430, marked by last week's Tuesday's daily gap up of 2,430.58-2,433.67. It has closed within a short-term consolidation along the level of 2,440-2,450. It is around 1.7% below the August 8 all-time high of 2,490.87. The Dow Jones Industrial Average closed above 21,800 mark, and technology Nasdaq Composite was relatively stronger than the broad stock market, as it gained 0.3%. The nearest important level of resistance of the S&P 500 index remains at 2,450-2,455, marked by last week's Tuesday's local high. The next resistance level is at 2,465-2,475, marked by previous support level and local highs. The resistance level is also at 2,490-2,500, marked by the above-mentioned all-time high. On the other hand, support level is at 2.430-2,435, marked by the Tuesday's daily gap up and yesterday's daily low. The next support level remains at 2,400-2,420. The market has retraced some of its recent downtrend on Tuesday, but then it failed to extend the short-term uptrend. There have been no confirmed positive signals so far. We still can see some negative technical divergences. But will they lead to medium-term downward correction? The S&P 500 index continues to trade within a medium-term consolidation following early June breakout above 2,400 mark, as we can see on the daily chart:

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up between 0.1% and 0.2% vs. Tuesday's closing prices. The European stock market indexes have gained 0.3-0.5% so far. Investors will now wait for some economic data announcements: ADP Non-Farm Employment Change release at 8:15 a.m., the U.S. GDP number at 8:30 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that GDP grew 2.7% in Q2, and the ADP number was at 185,000 in August. The S&P 500 futures contract trades within an intraday consolidation following an overnight move up. The market has extended its yesterday's intraday bounce following a lower opening. It has got close to recent local highs. The nearest important level of resistance is at around 2,450-2,455, marked by these short-term local highs. On the other hand, support level is at 2,420-2,435, marked by yesterday's intraday consolidation. Is this a new uptrend or just more consolidation? The futures contract continues to trade along 2,450 mark, as the 15-minute chart shows:

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates following yesterday's rally. The nearest important level of resistance is at around 5,900 mark. The next resistance level is at 5,920-5,950, marked by some previous local highs. On the other hand, level of support is at 5,850, and the next support level remains at 5,780-5,820, marked by yesterday's intraday consolidation. The market trades within an intraday downward correction of a short-term uptrend. Will it continue higher today?

Concluding, the S&P 500 index has managed to stay within its week-long consolidation yesterday, following much lower opening of the trading session. Will it continue higher today? There have been no confirmed short-term positive signals so far. We still can see some medium-term overbought conditions along with negative technical divergences.

Therefore, we continue to maintain our medium-term short position (opened at 2,437.83 on June 5 - opening price of the S&P 500 index). Stop-loss level is at 2,510 and potential profit target is at 2,300 (S&P 500 index). One 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: medium-term 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:

Intraday trade:

No intraday position is justified from the risk/reward perspective today.

Medium-term trade:

S&P 500 index - short position: profit target level: 2,300; stop-loss level: 2,510
S&P 500 futures contract (September) - short position: profit target level: 2,297; stop-loss level: 2,507
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $251
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $12.56; profit target level: $13.98; stop-loss level: $11.82

Thank you.

Paul Rejczak
Stock Trading Strategist
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