Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with an entry at 4,540 price level, with a new stop-loss level of 4,680 (we decided to move it a bit higher to keep our position in the market and to maintain a favorable risk/reward ratio vs. the mentioned entry price level; that's the only time we adjust the stop-loss level) and 4,400 as an initial price target.
The S&P 500 extended its bull market on Friday as it reached the new record high above the 4,600 level. Is this still a topping pattern?
The S&P 500 index gained 0.19% on Friday, Oct. 29, as it extended its recent advance following a lower opening of the trading session. It reached yet another new record high of 4,608.08. The stock market was reacting to worse-than-expected quarterly corporate earnings releases from the AAPL and AMZN. However, the MSFT and TSLA stocks drove the index higher again on Friday. The market seems overbought in the short-term most likely it’s still trading within a topping pattern.
The nearest important support level is at 4,550-4,570, and the next support level is at 4,520-4,525, marked by the previous daily gap up of 4,520.40-4,524.40. On the other hand, the resistance level is now at around 4,650. The S&P 500 trades along a short-term upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):
Apple Is Volatile While Microsoft Keeps Rallying
Let’s take a look at the two biggest stocks in the S&P 500 index, AAPL and MSFT. Apple released its earnings after the Thursday’s close and the first reaction was negative. But on Friday the stock retraced some of its intraday decline. Nevertheless it lost 1.8%. The resistance level remains at $154-156. It is still trading well below the record highs, as we can see on the daily chart:
Now let’s take a look at MSFT. It keeps rallying and reaching new record highs after its last week’s Tuesday’s quarterly earnings release. The market remains above a month-long upward trend line. We can see that in the short-term it’s getting more and more technically overbought. The stock may enter a consolidation or a correction just like in the middle of August when it rallied above $300 level.
Is a Short Position Still Justified?
Let’s take a look at the hourly chart of the S&P 500 futures contract. In mid-October the market broke above its downward trend line and it broke above its previous local high of around 4,470. On Friday it broke above the resistance level of around 4,600. Since the previous Friday, the price is trading above a short-term upward trend line.
The market seems overbought and poised for a correction. Therefore, we still think that a speculative short position is justified from the risk/reward perspective. To keep our position in the market and to maintain a favorable risk/reward ratio vs. the entry price level we decided to move a stop-loss level a bit higher. That's the only time we adjust the stop-loss level. (chart by courtesy of http://tradingview.com):
Conclusion
The S&P 500 index reached the news record high on Friday, however it closed with a gain of just 0.2%. It still looks like a topping pattern and we may see a consolidation or a downward correction at some point. There may be a profit-taking action following quarterly earnings releases. Today the main indices are expected to open 0.4% higher, but we will likely see an intraday correction later in the day.
Here’s the breakdown:
- The S&P 500 reached new record high on Friday, as it broke slightly above the 4,600 level.
- A speculative short position is still justified from the risk/reward perspective.
- We are expecting a 3% or higher correction from the new record highs.
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 4,540 price level, with a new stop-loss level of 4,680 (we decided to move it a bit higher to keep our position in the market and to maintain a favorable risk/reward ratio vs. the mentioned entry price level; that's the only time we adjust the stop-loss level) and 4,400 as an initial price target.
Thank you.
Paul Rejczak,
Stock Trading Strategist
Sunshine Profits: Effective Investments through Diligence and Care
