Briefly:

Intraday trade: Our yesterday's bearish intraday outlook has proved wrong. The S&P 500 continued its uptrend after opening higher at 9:30 a.m. However, it didn't reach the stop-loss level of 2,490. The market may fluctuate or retrace some of its Monday's rally today. 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 now 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 1.1-1.2% on Monday, breaking above their recent trading range, as investors' sentiment improved. The S&P500 index got very close to its August 8 all-time high of 2,490.87 yesterday. It currently trades just 0.1% below that record high. The Dow Jones Industrial Average is back above the level of 22,000 again, and the technology Nasdaq Composite index broke above 6,400 mark. The nearest important level of resistance of the S&P 500 index is at around 2,490-2,500, marked by record high. On the other hand, support level is at around 2,465-2,475, marked by yesterday's daily gap up of 2,467.11-2,474.52. The next level of support is at 2,460, marked by last week's short-term consolidation. The support level is also at  2,445, marked by recent local lows. The broad stock market continues to trade within its over-month-long consolidation. Will it break higher and continue towards new record highs above the level of 2,500? 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 at previously broken upward trend line, as we can see on the daily chart:

Will Uptrend Continue?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2% vs. their Monday's closing prices. The European stock market indexes have been mixed so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday uptrend, as it reaches new record high this morning. The nearest important resistance level is at 2,500. 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 remains close to local high, as the 15-minute chart shows:

Nasdaq Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. It gets closer to 6,000 mark again. The nearest important level of resistance is at around 6,000-6,020, marked by record high. On the other hand, support level remains at 5,950, 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 awaits the Apple product conference today. Let's take a look at Apple stock daily chart (chart courtesy of http://stockcharts.com). Will this stock rally towards new record high or bounce off its previously broken upward trend line? We can see some relative weakness vs. the broad stock market index here:

Concluding, the S&P 500 index got very close to its early August record high yesterday, as investors' sentiment improved. The broad stock market will probably reach new all-time high today, following futures contract move up. 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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