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.

Stocks sold off on Monday following some clearly negative news from China’s real estate sector. But is holding short position still justified?

The S&P 500 index fell the lowest since July 20 yesterday, as it reached the daily low of 4,305.91. It was 239.9 points or 5.28% below the September 2 record high of 4,545.85. We’ve witnessed an intraday rebound as the market closed around 52 points above the daily low. Nevertheless, the index lost 1.70% on Monday.

The nearest important support level of the broad stock market index is now at 4,300-4,330 and the next support level is at 4,200. On the other hand, the nearest important resistance level is now at 4,400-4,450, marked by the previous support level. The S&P 500 broke below its over four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Our Short Position is Profitable, but Is It 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 is profitable right now and 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 broke below its short-term consolidation on Friday and yesterday it accelerated the downtrend from the early September record high. However, later in the day we’ve seen an over 1% intraday rebound. Most likely it was just a short-covering rally.

There have been no confirmed positive signals so far. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

• The market accelerated its downtrend on Monday, as the S&P 500 index got close to 4,300 level.
• Our speculative short position is still justified from the risk/reward perspective.
• We are expecting some more downward pressure and a correction to 4,200-4,250 level.

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