Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year's all-time high:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): neutral

The U.S. stock market indexes lost 0.1-0.2% on Monday, extending their short-term fluctuations, as investors took some profits off the table following last week's rebound. The S&P 500 index bounced off support level at around 2,350, before closing just 0.2% lower. It has retraced some of the March 21 decline recently. The index remains less than 2% below March 1 all-time high of 2,400.98. The Dow Jones Industrial Average remained below 20,700 mark, and technology Nasdaq Composite index broke slightly below the level of 5,900. Overall, stocks retraced some more of their recent move down off new record highs recently. Is this a new uptrend or just upward correction within new medium-term downtrend? The nearest important level of support of the S&P 500 index is at around 2,350, marked by recent local lows. The next support level is at 2,335-2,340, marked by local lows. The support level is also at 2,320, marked by February 13 daily gap up of 2,319.23-2,321.42 and last Monday's local low. On the other hand, the nearest important level of resistance is now at 2,370, marked by short-term local highs. The next resistance level is at 2,380-2,400, marked by all-time high, among others. We can see some short-term volatility following five-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerated on March 1 and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index continues to trade along its medium-term upward trend line, as we can see on the daily chart:

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2%. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Trade Balance at 8:30 a.m., Factory Orders at 10:00 a.m. The market expects that Factory Orders number grew 1.0%, and the U.S. Trade Balance was -$46.0B in February. The S&P 500 futures contract trades within an intraday consolidation, following an overnight move down. The nearest important level of resistance is at around 2,355-2,365, marked by local highs and previous short-term consolidation. The resistance level is also at 2,380-2,400, marked by topping consolidation along record high. On the other hand, support level is now at around 2,340, marked by yesterday's local low. The next support level is at 2,330-2,335, marked by previous level of resistance. The market trades within a short-term downtrend, following last week's move up. Is this just downward correction before another leg up?

The technology Nasdaq 100 futures contract remains relatively stronger than the broad stock market, as it continues to trade closer to record high above the level of 5,450. The nearest important level of resistance is at around 5,440-5,450, marked by all-time high. On the other hand, support level is at 5,400-5,420, marked by short-term local lows. The next level of support is at 5,380-5,390, marked by previous resistance level. The support level is also at around 5,360, as the 15-minute chart shows:

Concluding, the S&P 500 index retraced some of its last week's move up yesterday, before bouncing off support level. The broad stock market extended its short-term consolidation along five-month-long medium-term upward trend line. There have been no confirmed short-term positive signals so far. We still can see medium-term overbought conditions along with negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on February 15 at 2,335.58 - opening price of the S&P 500 index). Stop-loss level is at 2,410 and potential profit target is at 2,200 (S&P 500 index). You 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: 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:

S&P 500 index - short position: profit target level: 2,200; stop-loss level: 2,410
S&P 500 futures contract (June) - short position: profit target level: 2,197; stop-loss level: 2,407
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $220; stop-loss level: $241
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts