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 fell to new local low yesterday before rebounding slightly and closing 0.2% higher. Was it a bottom or just pause before another leg down?
The broad stock market index fell to the daily low of 4,445.70 on Monday and it was the lowest since August 20. On September 2 the index reached a new record high of 4,545.85. Since then it has lost 100 points. This morning stocks are 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 is at 4,465-4,470, marked by the previous local low. The next support level is at 4,445-4,450. On the other hand, the nearest important resistance level is at 4,490-4,500, marked by the previous support level. The S&P 500 got back close to its over four-month-long upward trend line on Friday, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Our Short Position is Close to Break-Even Point
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
Yesterday, the S&P 500 index continued its short-term downtrend following breaking below 4,500 level on Friday. For now, it still looks like a correction within an uptrend. Today we will most likely see a flat opening of the trading session – we may see a short-term consolidation along the mentioned support level of 4,450.
The market seems overbought, and we may see some downward correction soon. Therefore, we think that the short position is justified from the risk/reward perspective.
Here’s the breakdown:
- The market retraced more of its recent advances yesterday, as the S&P 500 index extended its decline below 4,450 level.
- Our speculative short position is still justified from the risk/reward perspective.
- We are expecting a 5% or bigger correction from the 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
