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 reversed sharply lower on Thursday following quarterly earnings, economic data releases. Is the short-term uptrend over?

The S&P 500 index lost 2.44% on Thursday, as it retraced its Tuesday’s-Wednesday’s advance. The market reversed from the Wednesday’s local high of 4,595.31. On the previous Monday’s low of 4,222.62 it was 596 points or 12.4% below the Jan. 4 record high of 4,818.62. Yesterday the index broke below the 4,500 level again, as investors reacted to a sell-off in Meta (Facebook) stocks following its quarterly earnings release.

Late December – early January consolidation along the 4,800 level was a topping pattern and the index retraced all of its December’s record-breaking advance. Last week on Friday it broke above a steep short-term downward trend line before coming back closer to the 4,600 level.

The nearest important resistance level is now at 4,500 again and the next resistance level is at 4,550-4,600. On the other hand, the support level is at 4,400-4,450. The S&P 500 remains below the November-January consolidation, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract Trades Along the 4,450 Level

Let’s take a look at the hourly chart of the S&P 500 futures contract. Last Friday it broke above the short-term downward trend line and it rallied up to around the 4,600 level this week. Right now, it is trading within a correction following the rally.

We closed our profitable long position at the opening of Tuesday’s cash market’s trading session, at the 4,512 price level. Overall, we gained 177 index points on that position. The market is now trading below our trade exit level. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index is expected to open with a loss of 0.9% following higher than expected Nonfarm Payrolls release. So the correction will likely extend this morning. We may see an intraday rebound later in the day though. There is still an uncertainty concerning Russia-Ukraine tensions.

Here’s the breakdown:

• The S&P 500 will likely retrace more of its recent rally this morning; for now it looks like a correction.
• On Tuesday we closed our profitable long position that was opened a week earlier, on Jan. 25 at the 4,335 level - S&P 500 continuous futures contract – a gain of around 177 index points. 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