Trading position (short-term, our opinion; levels for S&P 500 continuous futures contract): short positions with an entry at 4,435 price level, with a stop-loss level of 4,550 and 4,200 as a price target.

Stocks bounced on Wednesday following the FOMC Monetary Policy release. So is the downtrend over? Or was it just an upward correction?

The S&P 500 index fell the lowest since July 20 on Monday, as it reached the local low of 4,305.91. It was 239.9 points or 5.28% below the September 2 record high of 4,545.85. On Tuesday and Wednesday it bounced up to the local high of 4,416.75.

The nearest important support level of the broad stock market index is at 4,300-4,330 and the next support level is at 4,200. On the other hand, the nearest important resistance level is now at 4,400-4,450, marked by the previous support level. The S&P 500 broke below its over four-month-long upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Our Short Position is In Profit

Let’s take a look at the hourly chart of the S&P 500 futures contract. We opened a short position on August 12 at the level of 4,435. The position is profitable right now and we still think that a speculative short position is justified from the risk/reward perspective. (chart by courtesy of http://tradingview.com):

Conclusion

On Monday, the S&P 500 index accelerated the downtrend from the early September record high and it reached to around 4,300 price level. On Tuesday and Wednesday we’ve witnessed a short-covering rally fueled by the Wednesday’s FOMC Monetary Policy release. Most likely it was just an upward correction within a downtrend.

There have been no confirmed positive signals so far. Therefore, we think that the short position is justified from the risk/reward perspective.

Here’s the breakdown:

• The market accelerated its downtrend on Monday, as the S&P 500 index got close to 4,300 level.
• Our speculative short position is still justified from the risk/reward perspective.
• We are expecting some more downward pressure and a correction to 4,200-4,250 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 an entry at 4,435 price level, with a stop-loss level of 4,550 and 4,200 as a price target.

Thank you.

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