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 stop-loss level of 4,550 and 4,200 as a price target.

The S&P 500 index reached a new record high on Monday following the breakout above the 4,500 price mark. Is this still a topping pattern?

The most renowned index gained 0.43% on Monday as it further extended its short-term uptrend after some dovish remarks from Fed Chair Powell at the Jackson Hole Symposium on Friday. The index reached yet another new record high of 4,537.36. The market remains elevated following the recent run-up, so we may see a more profound profit-taking action at some point.

The nearest important support level of the broad stock market index is now at 4,500, and the next support level is at 4,465-4,470, marked by last Thursday’s low. On the other hand, the nearest important resistance level is at 4,550. The S&P 500 bounced from its four-month-long upward trend line recently, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Dow Jones is Clearly 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. It remains relatively weaker this week, as it didn’t reach a new record high like the S&P 500 and the Nasdaq. The support level remains at around 35,000, as we can see on the daily chart:

Short Position Still Justified

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 reached a new record high yesterday, as it extended its Friday’s run-up led by the tech sector and the record-breaking Nasdaq rally. However, the market seems short-term overbought, and we may see some profit-taking action soon. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

• The market extended its advance, as the S&P 500 index broke above 4,500 level.
• 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 stop-loss level of 4,550 and 4,200 as a price target.

Thank you.

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