Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

Stocks reached a new short-term low yesterday before closing slightly higher for the day. Is the downward correction over?

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The S&P 500 index closed 0.30% higher on Wednesday, Oct 13 after breaking below the 4,350 level. The market extended its week-long decline from its last Thursday’s local high of around 4,430. Yesterday it fell to the local low of 4,329.92.

The broad stock market index has lost 100 points from the mentioned last week’s high. However, today the main indices are expected to open 0.9-1.1% higher following better-than-expected economic data releases (the Producer Price Index and the weekly Unemployment Claims were both lower than expected), and we may see an attempt at getting back above the 4,400 level. For now, it looks like an almost month-long consolidation following the mid-September sell-off to around 4,300. And we may see some more uncertainty, as investors await the coming quarterly corporate earnings season.

The support level remains at around 4,350 and the next support level is at 4,300-4,320, marked by the recent local lows. On the other hand, the resistance level is at 4,400-4,420. The S&P 500 remains above its month-long downward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract Is Back At the Trend Line

Let’s take a look at the hourly chart of the S&P 500 futures contract. The market bounced back from the 4,400 level on Monday and yesterday it went as low as 4,320. The support level is now at 4,260-4,320, and the downward trend line is at 4,400. The market got very close to that trend line this morning. In our opinion no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index extended its short-term downtrend on Wednesday, Oct. 13 but it closed 0.3% higher. Today the market will probably retrace most of its week-long decline, but we may see some further uncertainty and a consolidation along the 4,400 level.

The risk/reward perspective seems less favorable right now and no positions are currently justified.

Here’s the breakdown:

• The S&P 500 broke above its consolidation last week, but for now it looks like an upward correction within an over month-long downtrend.
• We are still expecting more downward pressure and a correction to 4,200-4,250 level – as far as the index is trading within its almost month-long range.

As always, we’ll keep you, our subscribers, well-informed.

Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): No positions are currently justified from the risk/reward point of view.

Thank you.

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