Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with an entry at 4,435 price level, with a stop-loss level of 4,550 and 4,200 as a price target.

The broad stock market consolidates along Monday’s record high. Is this a topping pattern or just a pause before another record-breaking run-up?

The broad stock market index gained just 0.03% on Wednesday (Sep. 1), as it continued to fluctuate within a short-term consolidation. The S&P 500 further extended its short-term uptrend after some dovish remarks from Fed Chair Powell at the Jackson Hole Symposium on Friday (Aug. 27). The index reached yet another new record high of 4,537.36 on Monday. The market remains elevated following the recent run-up, so we may see some more profound profit-taking action at some point.

The nearest important support level of the broad stock market index remains at 4,500, and the next support level is at 4,465-4,470, marked by last Thursday’s low. On the other hand, the nearest important resistance level is at 4,550. The S&P 500 bounced from its four-month-long upward trend line recently, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Short Position Remains Justified

Let’s take a look at the hourly chart of the S&P 500 futures contract. We opened a short position on August 12 at the level of 4,435. The position was profitable before the recent run-up. We still think that a speculative short position is justified from the risk/reward perspective. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index reached a new record high on Monday, but since then it has been trading within a relatively narrow range. Investors are waiting for tomorrow’s monthly jobs data release. Wednesday’s ADP Non-Farm Employment Change number came in worse than expected, but Friday’s Non-Farm Payrolls may lift the market’s volatility again.

The market seems short-term overbought, and we may see some profit-taking action soon. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

• The market extended its advance on Monday, as the S&P 500 index broke above the 4,500 level.
• Our speculative short position is still justified from the risk/reward perspective.
• We are expecting a 5% or bigger correction from the new record high.

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 4,435 price level, with a stop-loss level of 4,550 and 4,200 as a price target.

Thank you.

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