Briefly:

Intraday trade: Our yesterday's neutral intraday outlook has proved accurate. The S&P 500 index extended its short-term fluctuations, as it remained within Wednesday's daily trading range (just 8 index points trading range between the daily low and high). The market may extend its short-term consolidation today. The 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 2,530, 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 lost 0.2-0.5% on Thursday, slightly retracing their recent advance, as investors took some profits off the table following economic data releases, among others. The S&P 500 index remains close to Wednesday's new record high of 2,508.85. It closed at 2,500 mark yesterday. The Dow Jones Industrial Average has reached new record high at the level of 22,419.51, before reversing lower. The technology Nasdaq Composite was relatively weaker than the broad stock market, as it got closer to 6,400 mark. It fell more than 1% below Monday's new all-time high of 6,477.77. The nearest important level of resistance of the S&P 500 index remains at around 2,510. On the other hand, support level is at 2,490-2,500, marked by last week's Tuesday's daily gap up of 2,488.95-2,490.37, among others. The next support level remains at 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 continued its long-term uptrend, as it reached new record highs above the level of 2,500. It was gaining despite some short-term technical overbought conditions. We still can see medium-term negative technical divergences, but will they lead to a downward correction?

Slightly Negative Expectations

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2% vs. yesterday's closing prices. The European stock market indexes have gained 0.2-0.5% so far. Investors will now wait for the Purchasing Managers' Index release at 9:45 a.m. The market expects that it was at 55.8 in September. The S&P 500 futures contract trades within an intraday uptrend following overnight move down. It bounced off support level at around 2,490. However, it trades slightly below the level of 2,500. The nearest important level of resistance is at around 2,500-2,510. On the other hand, support level remains at 2,490, marked by previous level of resistance. 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 along previously broken resistance level, as we can see on the 15-minute chart:

Nasdaq Still Weaker

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of its overnight move down. Is this a new downtrend or just downward correction before another leg higher? The nearest important level of resistance is at around 5,930-5,950, marked by recent support level. The next resistance level is at 5,980-6,000, marked by short-term consolidation. On the other hand, level of support is at 5,900, marked by an overnight low, among others. The Nasdaq futures contract trades below its short-term downward trend line, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com) again. It accelerated its short-term downtrend yesterday, following breakout below recent consolidation. The stock continues to trade below previously broken upward trend line and below its over-month-long rising wedge pattern. We still can see relative weakness vs. the broad stock market index. The price is close to support level of the early August daily gap up. Will it break below or bounce back?

Now, let's take a look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com). The blue-chip index reached new record high yesterday, as it was still relatively stronger than the broad stock market. However, it reversed its intraday uptrend and closed 0.2% lower. Is this an uptrend reversal? We can see some negative technical divergences, along with topping pattern:

Concluding, the S&P 500 index lost 0.3% yesterday, as it retraced some of its recent move up. Is this an uptrend reversal or just quick downward correction? We can see some short-term negative signals. The broad stock market may retrace more of its September advance. We still can see medium-term overbought conditions along with negative technical divergences.

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). We decided to move our stop-loss level up for the first time yesterday, to the level of 2,530 (from 2,510). It will be the final stop-loss for this trade. Potential profit target remains 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: 2,530
S&P 500 futures contract (December) - short position: profit target level: 2,297; stop-loss level: 2,527
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $253
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $50.24; profit target level: $55.92; stop-loss level: $46.46

Thank you.

Paul Rejczak
Stock Trading Strategist
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