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 gained between 0.3% and 0.7% on Thursday, retracing some of their Wednesday's move down, as investors reacted to economic data releases, among others. The S&P 500 index has reached new record high of 2,405.77 on Tuesday. However, it failed to continue the uptrend and sold off on Wednesday, following a gap down opening of the trading session. Is yesterday's rebound an upward reversal or just correction within a new short-term downtrend? The Dow Jones Industrial Average closed below the level of 20,600, and the technology Nasdaq Composite index gained 0.7% following Wednesday's sell-off of 2.6%. It remained above the level of 6,000. The nearest important level of support of the S&P 500 index is now at 2,350-2.355, marked by late April daily gap up, among others. The next level of support is at 2,320-2,330, marked by previous local lows. On the other hand, resistance level is now at around 2,370-2,375, marked by previous level of support. The next resistance level is at 2,385-2,395, marked by Wednesday's daily gap down of 2,384.87-2,396.05. The resistance level is also at 2,400-2,405, marked by the above-mentioned new record high. Is this a topping pattern before medium-term 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 trades below 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 positive, with index futures currently up 0.1-0.2%, as investors' sentiment improves following yesterday's rebound. The European stock market indexes have gained 0.3-0.5% so far. There will be no new important economic data announcements today. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates along the level of 2,360-2,370, following yesterday's move up. The nearest important level of resistance is at around 2,370-2,375, marked by short-term local highs. The next level of resistance is at 2,380-2,385, marked by some previous local highs. On the other hand, support level is at around 2,340-2,345, and the next support level is at 2,300-2,320, marked by previous fluctuations. There have been no confirmed positive signals so far. But will the market continue its short-term downtrend? Or is this just a move down within a three-month-long consolidation along new record highs?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within a consolidation above the level of 5.600. It has retraced its few-week-long rally to new record highs above the level of 5,700 on Wednesday. Then, it bounced off support level at around 5,550. The nearest important level of support is at around 5,600-5,620, marked by some recent fluctuations. The next support level remains at around 5,550-5,570. On the other hand, resistance level is 5,630-5,650, and the next level of resistance is at 5,680-5,700, as the 15-minute chart shows:

Concluding, the S&P 500 index broke below its short-term consolidation on Wednesday, as it retraced most of the late April rally. It bounced off support level of 2,350 yesterday. However, the broad stock market remained below its Wednesday's daily gap down. Is this a new downtrend or just downward correction within an almost three-month-long consolidation? There have been no confirmed positive signals so far. For now, it looks like a new downtrend and the market may retrace more of its over year-long uptrend. We still can see medium-term 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
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