Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with entry at 4,678 price level, with 4,720 as a stop-loss and 4,350 as a price target.

The broad stock market bounced from its Friday’s low and today it is expected to retrace more of the recent declines. Is the downtrend over?

The S&P 500 index gained 1.17% on Monday, as it got back to the 4,600 level again. The broad stock market’s gauge bounced from the 4,500 level and it retraced more of its 5.24% correction from the Nov. 22 record high of 4,743.83. Yesterday it looked like a consolidation, but this morning the S&P 500 is expected to open 1.3% higher following global stock markets’ rally.

The nearest important support level is now at around 4,550 and the next support level is at 4,500. On the other hand, the resistance level is at 4,630, marked by the previous local low. The resistance level is also at 4,650. The S&P 500 will most likely break above its short-term downward trend line this morning, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Is Short Position Still Justified?

Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above the downward trend line yesterday and today it is retracing more of its recent decline. But the market gets closer to a potential resistance level, marked by the previous local lows.

Therefore, we still think that a speculative short position (opened on Tuesday, Nov. 23 - 4,678 price level) is justified from the risk/reward perspective. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index will likely break above its downward trend line today and we may see an attempt at retracing more of its recent declines. However, it still looks like an upward correction within a downtrend.

Here’s the breakdown:

• The S&P 500 is expected to open higher following an overnight global stock markets rally.
• A speculative short position is still justified from the risk/reward perspective.

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 entry at 4,678 price level, with 4,720 as a stop-loss and 4,350 as a price target.

Thank you.

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