Briefly:

Intraday trade: Our Monday's neutral intraday outlook has proved accurate. The S&P 500 index continued to fluctuate within almost week-long trading range along the level of 2,450. Stocks will probably open lower today, but they may bounce off support level marked by previous local low. 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 main U.S. stock market indexes were mixed between 0.0% and +0.3% on Monday, as investors continued to hesitate following last week's Tuesday's bounce. The S&P 500 index extended its relatively narrow trading range, as it traded along the level of 2,440-2,450 yesterday. It closed around 1.8% below the August 8 all-time high of 2,490.87. The Dow Jones Industrial Average remained close to 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 Tuesday's daily gap up of 2,430.58-2,433.67. The next support level remains at 2,400-2,420. The market retraced some of its recent downtrend on Tuesday, but then it failed to extend its 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:

Much Lower

Expectations before the opening of today's trading session are negative, with index futures down between 0.5% and 0.8% vs. their yesterday's closing prices. The global stock markets react to North Korea crisis. The European stock market indexes have lost 1.2-1.7% so far. Investors will now wait for the Consumer Confidence number release at 10:00 a.m. The market expects that it was at 120.9 in August. The S&P 500 futures contract trades within an intraday consolidation following an overnight sell-off. The nearest important level of support is at around 2,420, marked by short-term local low. The next support level is at 2,400 mark. On the other hand, resistance level is at 2,430-2,435, marked by yesterday's intraday gap down following North Korea' missile launch news release. The next level of resistance is at 2,440-2,450, marked by recent fluctuations. Will downtrend continue? Or is this some bottoming pattern before an upward reversal?

Nasdaq Also Weaker

The technology Nasdaq 100 futures contract trades within a similar intraday consolidation following an overnight decline. Will it continue lower today? The nearest important level of resistance is at around 5,800-5,820, marked by local highs. The next resistance level is at 5,830-5,850. On the other hand, support level is at around 5,750-5,780, marked by recent local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term fluctuations on Monday, as investors continued to hesitate following last week's rebound off support level. However, expectations before today's trading session are negative after North Korea crisis news. Will downtrend continue? Or is this some bottoming pattern? 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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