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.

Stocks went lower yesterday, as investors took profits off the table ahead of today’s FOMC release. Was it a reversal or just correction?

For in-depth technical analysis of various stocks and a recap of today's Stock Trading Alert we encourage you to watch today's video.

The S&P 500 index lost 0.75% on Tuesday, as it broke below its recent trading range. The broad stock market’s gauge retraced some of its rally and it got back below the 4,650 level. On the previous Friday the index fell to the local low of 4,495.12 and it was 5.24% below the Nov. 22 record high of 4,743.83. Then we saw another attempt at getting back to the all-time high and on Friday the index closed the highest in history.

So was yesterday’s decline only a correction? For now, it looks like a downward correction, but we may see some more volatility following today’s FOMC release and tomorrow’s ECB and the BOE release. Today the index is expected to open virtually flat and it will likely trade within a consolidation before the Fed release at 2:00 p.m.

The nearest important resistance level is now at 4,665-4,670, marked by the recent local lows and the next resistance level is at 4,700. On the other hand, the support level is at 4,610-4,630, marked by the previous Tuesday’s daily gap up of 4,612.60-4,631.97. The support level is also at 4,600. The S&P 500 is close to the early November local low, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Tech Stocks Are Relatively Weaker

Let’s take a look at the Nasdaq 100 chart. The technology index bounced to the resistance level of 16,400. Tech stocks remain relatively weaker, as the Nasdaq 100 is closer to the early December local lows.

Our Short Position Remains Profitable

Let’s take a look at the hourly chart of the S&P 500 futures contract. It broke above the downward trend line last week and it rallied up to its previous local highs. On Monday the market was very close to our stop-loss level of 4,720 and it traded slightly above it in the early morning. But it got back well below that level, so we are still maintaining our short position (opened on Nov. 23 at the 4,678 price level). (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index will likely trade within an intraday consolidation before the Fed release today. Then we may see an increased volatility in stocks, currencies and commodities. The S&P 500 index trades within a downward correction and we may see more profit-taking action in the near term.

Here’s the breakdown:

• The S&P 500 is expected to open virtually flat ahead of today’s FOMC release.
• We are maintaining our short position from the 4,678 level.

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