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 remains close to its last Thursday’s record high. Are stocks heading lower soon? Let’s keep an eye on the nearest support!

The broad stock market index lost 0.13% on Wednesday (Sep. 8) as it broke below the recent local lows. However, the market has bounced from a deeper daily loss. It went slightly below the 4,500 level before bouncing back. Last Thursday (Sept. 2) the index reached a new record high of 4,545.85. This morning the market is expected to open virtually flat.

The index remains elevated after the recent run-up, so we may see some more profound profit-taking action at some point.

The nearest important support level of the broad stock market index remains at 4,500, and the next support level is at 4,465-4,470, marked by the previous 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):

Is 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 went briefly below the 4,500 level yesterday. For now, it looks like a correction within an uptrend. However, today we will most likely see a neutral opening of the trading session followed by another profit-taking action.

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 last week, as the S&P 500 index broke above the 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