Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with entry at 4,678 price level, with 4,820 as a stop-loss and 4,450 as a price target.

Stocks retraced some of their Friday’s sell-off yesterday, but this morning they are expected to open lower again. Will the downtrend continue?

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The S&P 500 index gained 1.32% on Monday, as it retraced more than a half of its Friday’s decline of 2.3%. On Friday the market broke below its recent local low in a reaction to the news about a new Covid variant from South Africa. And it seems that the pandemic news are still affecting global markets. Today stocks fell in Asia and Europe following predictions from the Moderna (MRNA) CEO that vaccines may be less effective. The S&P 500 index is expected to open 0.9% lower and we may see some more short-term consolidation following last week’s breakdown.

The nearest important support level is now at 4,580-4,600. On the other hand, the resistance level is at 4,650-4,560, marked by the recent local lows. The S&P 500 retraced most of its early November advance, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Short Position Is Still Profitable

Let’s take a look at the hourly chart of the S&P 500 futures contract. The market broke below the 4,700 level and the month-long upward trend line last week.

It looked like a topping pattern following the advance from the early October lows. Therefore, we decided to open a speculative short position a week ago on Tuesday (4,678 price level). It remains in profit, as we can see on the chart (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index is expected to open 0.9% lower this morning, as global markets continue to react on Covid news. We will likely see an intraday consolidation following a lower opening. For now, it looks like a consolidation within a short-term downtrend.

Here’s the breakdown:

• The S&P 500 traded within a short-term topping pattern last week and on Friday it suffered an over 2% sell-off.
• A speculative short position is still justified from the risk/reward perspective.
• We are expecting a 5% correction.

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 entry at 4,678 price level, with 4,820 as a stop-loss and 4,450 as a price target.

Thank you.

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