Briefly:

Intraday trade: Our Thursday's intraday intraday outlook has proved accurate. The S&P 500 index closed 0.1% higher, however it gained almost 7 points from the opening price. The index may continue to fluctuate along its record high today. It remains 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 0.0% and +0.2% on Thursday, extending their recent fluctuations along record highs, as investors' sentiment remained bullish following economic data releases, among others. The S&P 500 index traded close to its Wednesday's new all-time high of 2,511.75. The Dow Jones Industrial Average got closer to its last Thursday's new record high of 22,419.51. The technology Nasdaq Composite was unchanged, as it remained close to new all-time high at the level of 6,472.55. The nearest important level of resistance of the S&P 500 index remains at around 2,510, marked by Wednesday's record high. 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 S&P 500 index is currently trading along new record highs. We still can see medium-term negative technical divergences, but will they lead to a downward correction?

Still At Record High

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.05% and +0.15% vs. their yesterday's closing prices. The European stock market indexes have gained 0.2-0.7% so far. Investors will now wait for some economic data announcements: Personal Income, Personal Spending, Core PCE Price Index at 8:30 a.m., Chicago PMI at 9:45 a.m., Michigan Sentiment final number at 10:00 a.m. The market expects that Personal Income grew 0.2%, Personal Spending grew 0.1% in August, and the Chicago PMI was at 58.6 in September. The S&P 500 futures contract trades within an intraday consolidation, following yesterday's advance off its short-term support level at around 2,500. The nearest important level of resistance is at 2,510, marked by new record high. On the other hand, support level is at 2,500, and the next level of support remains at 2,485-2,490, marked by previous resistance level. The support level is also at 2,480, marked by short-term consolidation. The futures contract trades close to record high, as we can see on the 15-minute chart:

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract trades within an intraday uptrend, as it retraces its recent move down. The nearest important level of resistance is at around 5,960, marked by short-term local highs. The next resistance level is at 5,980-6,020. On the other hand, support level remains at around 5,900, marked by previous level of resistance, among others. The Nasdaq futures contract trades along its short-term upward trend line, as the 15-minute chart shows:

Let's take a look at Apple, Inc. stock (AAPL) daily chart (chart courtesy of http://stockcharts.com). It rebounded following recent decline. The price bounced off support level at around $150 on Monday. Is this a new uptrend? Or just upward correction before another leg lower? There have been no confirmed positive signals so far. The price continues to trade below short-term resistance level of $155, marked by some previous local lows:

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 continues to fluctuate after its recent advance. It got closer to last Thursday's new record high yesterday. We can see some negative technical divergences. Is this a topping pattern or just pause before another leg higher?

Concluding, the S&P 500 index gained 0.1% on Thursday, as it continued to trade along Wednesday's new record high. Investors' sentiment remains bullish ahead of quarterly corporate earnings releases. But will uptrend continue? Is this a topping pattern or just another flat correction within an uptrend? 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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