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.

The S&P 500 index bounced from the new local low yesterday and we saw an increased volatility. Was that a reversal or just a dead cat bounce?

Due to some technical difficulties, today’s Stock Trading Alert is later than usual. We apologize for the inconvenience.

The S&P 500 index lost 0.27% on Monday after bouncing from the new local low of 4,582.24. The market accelerated its short-term downtrend, but it reversed higher and closed relatively flat yesterday. It looks like an upward reversal, however, we could see some more fluctuations. The broad stock market continues to trade within an over two-month long consolidation. The late December – early January consolidation along the 4,800 level was a topping pattern. And the market got back to its previous trading range.

On Dec. 3 the index fell to the local low of 4,495.12 and it was 5.24% below the previous record high. So it was a pretty mild downward correction or just a consolidation following last year’s advances.

The nearest important resistance level remains at 4,700-4,720. On the other hand, the support level is at 4,650. And the important support level is now at 4,580-4,600, marked by yesterday’s daily low. The S&P 500 retraced most of its mid-December record-breaking rally, as we can see on the daily chart – the chart includes today’s data (chart by courtesy of http://stockcharts.com):

Futures Contract – Back Within a Medium-Term Consolidation

Let’s take a look at the hourly chart of the S&P 500 futures contract. It reached the new record high on Tuesday a week ago before reversing the upward course and getting back below the support level of 4,740 on Wednesday. The market retraced most of its late December rally yesterday before bouncing back above the 4,650 level. 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 is trading 0.5% lower this morning, as it is retracing some of yesterday’s rebound from the new (short-term panic) local low. So, there is still a lot of uncertainty following mixed economic data releases and ahead of the expected Fed’s monetary policy tightening. We may see some more fluctuations within the November-December trading range.

Here’s the breakdown:

• The S&P 500 accelerated its downtrend yesterday before bouncing back higher and closing relatively flat – for now it looks like a quick upward correction.
• 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