Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

The S&P 500 extended its over week-long rally yesterday, as it almost reached its early September record high. Will it break higher?

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The S&P 500 index gained 0.37% on Wednesday, Oct. 20. Yesterday’s daily high was at 4,540.87, so the market almost reached its Sep. 2 record high of 4,545.85. The quarterly corporate earnings releases are positive for the market and they are only starting to gain traction. Today we will get the INTC quarterly release, among others. The market seems overbought in the short-term. However, there have been no confirmed negative signals so far.

The nearest important support level is now at 4,520-4,525, marked by yesterday’s daily gap up of 4,520.40-4,524.40. The support level is also at 4,485-4,500, marked by Tuesday’s daily gap up of 4,488.75-4,496.41 and the previous resistance level. On the other hand, the resistance level is at around 4,550-4,545, marked by the record high and the early September topping pattern. The S&P 500 extends its rally after breaking above a month-long downward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract – Short-term Consolidation Following Rally

Let’s take a look at the hourly chart of the S&P 500 futures contract. On Friday, the market broke above its downward trend line and it broke above its previous local high of around 4,470. The nearest important resistance level is now at around 4,520-4,550, marked by the early September topping pattern. In our opinion no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index got closer to its early September record high yesterday. The broad stock market extended its week-long rally, as it gained another 0.4%. The market seems overbought in the short term. However, the ongoing quarterly corporate earnings releases are supporting buyers. Today the market is expected to open 0.2% lower and we may see an intraday consolidation or a downward correction.

The risk/reward perspective seems less favorable right now and no positions are currently justified.

Here’s the breakdown:

• The S&P 500 extended its week-long rally yesterday, as it got closer to the early September record high.
• We are waiting for a more favorable risk/reward situation and we will probably enter a new speculative short position in the near term - there have been no confirmed negative signals so far.

As always, we’ll keep you, our subscribers, well-informed.

Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

Thank you.

Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care