Briefly:

Intraday trade: The market may retrace some of its recent rally today, as the S&P 500 index trades close to potential resistance level of 2,500. On the other hand, support level is relatively close, at yesterday's daily gap up of 2,488.95-2,490.37. Therefore, we prefer to be out of the market, 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 is 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 gained 0.3% on Tuesday, extending their short-term uptrend, as investors' sentiment remained bullish following breakout above recent consolidation. The S&P 500 index has reached new all-time high at the level of 2,496.77, almost 6 points above its previous August 8 high of 2,490.87. The Dow Jones Industrial Average got close to August 8 record high of 22,179.1, as it broke above the level of 22,100. The technology Nasdaq Composite index trades very close to record high of 6,460.84. The nearest important level of resistance of the S&P 500 index is at around 2,500. On the other hand, support level is at 2,490, marked by yesterday's daily gap up of 2,488.95-2,490.37. The next support level remains at around 2,465-2,475, marked by Monday's daily gap up of 2,467.11-2,474.52. The level of support is also at 2,460, marked by last week's short-term consolidation. The broad stock market resumed its long-term uptrend yesterday, as it reached new record high just below 2,500 mark. Will uptrend accelerate? Or is this some medium-term topping pattern ahead of downward correction? There have been no confirmed negative signals so far. However, we can see medium-term overbought conditions accompanied by negative technical divergences. The S&P 500 index is close to previously broken upward trend line, as we can see on the daily chart:

Slightly Negative Expectations

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Producer Price Index at 8:30 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that Producer Price Index grew 0.3% in August (Core PPI +0.2%), and Crude Oil Inventories grew 4.1M last week. The S&P 500 futures contract trades within an intraday consolidation following an overnight decline. The nearest important resistance level is at 2,495-2,500, marked by new record high. On the other hand, level of support is at 2,480-2,485, marked by short-term consolidation. The next support level is at 2,465-2,470, among others. The futures contract trades along new record high, as the 15-minute chart shows:

Nasdaq Close To Record High

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation following overnight move down. The market bounced off resistance level at around 6,000-6,020. On the other hand, support level remains at 5,960-5,970, marked by yesterday's intraday fluctuations. The next support level is at 5,920-5,940, marked by Monday's daily gap up. Will uptrend continue despite resistance level of 6,000 and some technical overbought conditions?

The market reacted to Apple's product conference yesterday. Let's take a look at Apple, Inc. stock daily chart (chart courtesy of http://stockcharts.com). It remains slightly below previously broken upward trend line, possibly some rising wedge pattern. We still can see some relative weakness vs. the broad stock market index here:

Concluding, the S&P 500 index reached new record high yesterday, as it broke slightly above its early August high. Will uptrend continue? Or is this some topping pattern before downward correction? There have been no confirmed short-term negative signals so far. However, 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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