Briefly:

Intraday trade: Our yesterday's neutral intraday outlook has proved accurate. The S&P 500 index fluctuated within a relatively narrow trading range of 10 points. The broad stock market index may extend its short-term consolidation today. Therefore, we 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 is 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 main U.S. stock market indexes gained 0.3% on Wednesday, extending their short-term fluctuations following last week's move up, as investors reacted to economic data announcements, among others. The S&P 500 index extends its over-month-long consolidation along the level of 2,450. It currently trades around 1% below the August 8 all-time high of 2,490.87. The Dow Jones Industrial Average trades along the level of 21,800, and the technology Nasdaq Composite index remains close to record high, as it trades along 6,400 mark. The nearest important level of resistance of the S&P 500 index is at around 2,470-2,475, marked by Tuesday's daily gap down of 2,471.97-2,473.85. The next resistance level is at 2,480-2,490, marked by recent local high and the above-mentioned August's record high. On the other hand, support level is at around 2,445, marked by Tuesday's daily low. The next level of support is at around 2.430-2,435, marked by previous daily gap up of 2,430.58-2,433.67 and last week's Wednesday's daily low. The broad stock market continues to trade within an over-month-long consolidation following November-July uptrend. Will it continue higher? Or is this some medium-term topping pattern before downward reversal?

Short-Term Uncertainty

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.05% and +0.05% vs. their yesterday's closing prices. The European stock market indexes have gained 0.5-1.0% so far. Investors will now wait for some economic data announcements: Initial Claims, Productivity number at 8:30 a.m. The market expects that Productivity grew 1.3% in Q2, and Initial Claims were at 241,000 last week. The S&P 500 futures contract trades within an intraday consolidation, as it extends Wednesday's fluctuations following a rebound off support level at around 2,445-2,450. On the other hand, level of resistance is at 2,465-2,470, marked by some short-term local highs. The next resistance level is at 2,475-2,480. The futures contract trades within a short-term consolidation, as we can see on the 15-minute chart:

Nasdaq Close To Record High

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. It fluctuates following Tuesday's sell-off and a rebound off support level. The nearest important level of resistance is at around 5,970-5,990, marked by recent consolidation. The next resistance level is at 6,000-6,020, marked by new record high. Will the tech stocks' market continue higher? Or is this some topping pattern before downward reversal?

Concluding, the S&P 500 index extended its short-term fluctuations on Wednesday, as it traded along the level of 2,460. Will the uptrend continue following last week's rebound off support level? 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.

Therefore, 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 (September) - 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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