Briefly:

Intraday trade: Our Tuesday's bearish intraday outlook didn't prove quite accurate. The S&P 500 index extended its consolidation along the level of 2,500, however, it closed around 4 points below the opening price. The index may continue to fluctuate below its record highs' resistance level and above support level of the September 12 daily gap up of 2,488.95-2,490.37. Therefore, we prefer to be out of the market, avoiding low risk/reward ratio trades.

Medium-term trade: In our opinion, short position is favored (opened on June 5 at 2,437.83, with stop-loss at 2,530, and profit target at 2,300, S&P 500 index).

Our intraday outlook is neutral today, and our short-term outlook is bearish, as we expect downward correction. Our medium-term outlook remains bearish:

Intraday outlook (next 24 hours): neutral
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): bearish

The U.S. stock market indexes were mixed between -0.05% and +0.15% on Tuesday, extending their short-term fluctuations, as investors reacted to economic data releases, Fed's Janet Yellen speech, among others. The S&P 500 index remained close to 2,500 mark and its last week's Wednesday's new record high of 2,508.85. The Dow Jones Industrial Average extended its fluctuations, slightly below last Thursday's new record high of 22,419.51. The technology Nasdaq Composite was relatively stronger than the broad stock market yesterday. However, it remained around 1.5% below last week's Monday's new all-time high of 6,477.77. The nearest important level of resistance of the S&P 500 index remains at 2,510. On the other hand, support level is still at 2,490, marked by the September 12 daily gap up of 2,488.95-2,490.37, among others. The next support level remains at 2,465-2,475, marked by the September 11 daily gap up of 2,467.11-2,474.52. The level of support is also at 2,460, marked by previous short-term consolidation. The S&P 500 index continued its long-term uptrend, as it reached new record highs above the level of 2,500. It was gaining despite some short-term technical overbought conditions. Now the market fluctuates, so those overbought conditions decrease. We still can see medium-term negative technical divergences, but will they lead to a downward correction?

Along Record High

Expectations before the opening of today's trading session are mixed, with index futures currently between 0.0% and +0.2% vs. yesterday's closing prices. The European stock market indexes have gained 0.2-0.5% so far. Investors will now wait for some economic data announcements: Durable Goods Orders number at 8:30 a.m., Pending Home Sales at 10:00 a.m, Crude Oil Inventories at 10:30 a.m. The market expects that Durable Goods Orders grew 1.0% in August. The S&P 500 futures contract trades within an intraday consolidation, following an overnight move up and bounce off resistance level at 2,500. The next level of resistance remains at around 2,510. On the other hand, support level is at 2,485-2,490, marked by previous level of resistance. The next support level is at 2,480, marked by short-term consolidation. The support level is also at 2,465-2,470, among others. The futures contract is slightly below its over-week-long descending trend line, as the 15-minute chart shows:

Nasdaq Bounces

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades along the level of 5,900, following overnight volatility. The nearest important level of support is at 5,870, marked by local low, and the next support level is at around 5,840-5,850, marked by Monday's daily lows. On the other hand, level of resistance is at 5,900-5,920, marked by recent fluctuations. The next important resistance level is at 5,950, marked by short-term local highs. The Nasdaq futures contract trades along its two-day-long upward trend line, as we can see on the 15-minute chart:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It is rebounding following recent decline. The price bounced off support level at around $150. But will it reverse its downtrend? Or is this just upward correction before another leg lower? There have been no confirmed positive signals so far:

Now, let's take a look at the Dow Jones Industrial Average daily chart (chart courtesy of http://stockcharts.com) again. The blue-chip index fluctuates after its recent advance. It is still close to last Thursday's new record high. We can see some negative technical divergences, along with topping pattern:

Concluding, the S&P 500 index lost was unchanged yesterday, as it continued to fluctuate along 2,500 mark, slightly below new record high. Is this a topping pattern or just another flat correction within an uptrend? Will the broad stock market retrace more of its September advance? We still can see medium-term overbought conditions along with negative technical divergences.

We continue to maintain our medium-term short position (opened at 2,437.83 on June 5 - opening price of the S&P 500 index). We decided to move our stop-loss level up for the first time on Thursday, to the level of 2,530 (from 2,510). This will be the final stop-loss for this trade. Potential profit target remains at 2,300 (S&P 500 index). One can trade S&P 500 index using futures contracts (S&P 500 futures contract - SP, E-mini S&P 500 futures contract - ES) or an ETF like the SPDR S&P 500 ETF - SPY. It is always important to set some exit price level in case some events cause the price to move in the unlikely direction. Having safety measures in place helps limit potential losses while letting the gains grow.

To summarize: medium-term short position in S&P 500 index is justified from the risk/reward perspective with the following entry prices, stop-loss orders and profit target price levels:

Intraday trade:

No intraday position is justified from the risk/reward perspective today.

Medium-term trade:

S&P 500 index - short position: profit target level: 2,300; stop-loss level: 2,530
S&P 500 futures contract (December) - short position: profit target level: 2,297; stop-loss level: 2,527
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $253
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $50.24; profit target level: $55.92; stop-loss level: $46.46

Thank you.

Paul Rejczak
Stock Trading Strategist
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