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 rebounded sharply from their recent sell-off yesterday. Was it an upward reversal or just an upward correction?

The S&P 500 index gained 1.78% on Tuesday, as it got back above the 4,600 mark following the recent 200-point sell-off from its Thursday’s local high of around 4732. On Monday it fell to the local low of 4,531.10. Investors were selling off stocks following last Wednesday’s FOMC Monetary Policy release. On Dec. 3 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 more than a week ago on Friday the index closed the highest in history.

Today the broad stock market is expected to open 0.2% lower and the market will most likely trade within a short-term consolidation above the 4,600 level. The nearest important resistance level is at around 4,665-4,670, marked by the recent local high. On the other hand, the support level is at 4,580-4,600. The S&P 500 continues to trade within a two-month-long consolidation, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract – More Sideways Trading

Let’s take a look at the hourly chart of the S&P 500 futures contract. It reached the new record high on Thursday, Dec. 16, before reversing its uptrend and getting back to the early Dec. lows. For now, it looks like a further consolidation and the market keeps extending its sideways trading action. 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 bounced sharply on Tuesday and it retraced most of its Friday’s-Monday’s decline. Today we will likely see a short-term consolidation following slightly lower opening of the trading session. The market’s volatility may be declining as we are getting closer to the Holiday break.

Here’s the breakdown:

• The S&P 500 continues to trade within a two-month-long consolidation
• In our opinion no positions are currently justified from the risk/reward point of view.

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