Briefly:

Intraday trade: Our Friday's neutral intraday outlook has proved partly accurate. The S&P 500 index slightly extended its uptrend, however, it traded within a relatively narrow intraday trading range. The market may retrace some of its recent rally today, as the S&P 500 index is at potential resistance level of 2,500. On the other hand, support level is relatively close, at last week's Tuesday's daily gap up of 2,488.95-2,490.37. Therefore, we still 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 remains 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 between 0.2% and 0.3% on Friday, extending their short-term uptrend, as investors' sentiment improved following economic data releases, among others. The S&P 500 index has reached new all-time high at the level of 2,500.23, around 2 points above its last Wednesday's high and almost 10 points above its previous August 8 high of 2,490.87. The Dow Jones Industrial Average has also extended its long-term uptrend. It reached new record high at the level of 22,275.02. The technology Nasdaq Composite index reached new all-time high at 6,464.27. However, it closed within its short-term consolidation along the level of 6,450. The nearest important level of resistance of the S&P 500 index is at 2,500. The next potential resistance level is at around 5,010-5,020. On the other hand, support level is at 2,490, marked by last week's Tuesday's daily gap up of 2,488.95-2,490.37. The next support level remains at around 2,465-2,475, marked by last Monday's daily gap up of 2,467.11-2,474.52. The level of support is also at 2,460, marked by previous short-term consolidation. The S&P 500 index resumed its long-term uptrend, as it reached new record high at around 2,500. Will uptrend continue? Or is this a medium-term topping pattern ahead of downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions accompanied by negative technical divergences:

New Record Highs?

Expectations before the opening of today's trading session are positive, with index futures currently up between 0.2% and 0.3% vs. Friday's closing prices. The European stock market indexes have gained 0.3-0.5% so far. Investors will now wait for the NAHB Housing Market Index release at 10:00 a.m. The market expects that it was at 67 in September. The S&P 500 futures contract trades within an intraday consolidation following overnight move up. The nearest important resistance level is at around 2,505, marked by new record high. On the other hand, level of support is at 2,500, marked by previous resistance level. The next support level is at 2,480-2,485, marked by short-term consolidation. The support level is also at 2,465-2,470, among others. The futures contract trades above its recent consolidation, as we can see on the 15-minute chart:

Tech Sector Also Higher

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after overnight move up. It currently trades slightly below Friday's daily high. It is relatively weaker than the broad stock market after bouncing off resistance level at around 6,020, marked by record high. The nearest important level of support is now at 5,990, marked by short-term local low. The next level of support remains at 5,920-5,950, marked by some previous fluctuations. The Nasdaq futures contract trades along its resistance level, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It remains below previously broken upward trend line or a rising wedge pattern. The Apple stock has weighting of around 4.0% in the S&P 500 index. We still can see some relative weakness vs. the broad stock market index here:

Now, let's take a look at the blue-chip Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com). The index extends its uptrend, as it reaches new record highs. However, we can see some negative technical divergences. Will it continue even higher despite short-term sell signals?

Concluding, the S&P 500 index reached new record high on Friday, as it closed slightly above 2,500 mark. Will the bull market extend even further? 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. The S&P 500 index gained around 4.1% since reaching its March 1 local local high of 2,400.98 (over six months ago). Will this uptrend accelerate or reverse?

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 (December) - 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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