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 extended their sell-off on Friday and today they are expected to open lower again. Will they finally reach some temporary bottom?

The S&P 500 index lost 1.89% on Friday following its Thursday’s decline of 1.2%. The broad stock market index fell slightly below the 4,400 level and it was the lowest since mid-October. Investors reacted to further Russia-Ukraine tensions. 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. This morning it is expected to open 0.8% lower and we may see another sell-off. However, the market is technically much oversold and an intraday rebound is a likely scenario.

The nearest important resistance level is now at 4,450, marked by the recent support level. The resistance level is also at 4,480-4,500. On the other hand, the support level is at around 4,370-4,380, marked by the October 14 daily gap up of 4,372.87-4,386.75. The support level is also at 4,330. The S&P 500 accelerated its downtrend after breaking below the upward trend line, as we can see on the daily chart (chart by courtesy of http://stockcharts.com):

Futures Contract – Further Sell-Off

Let’s take a look at the hourly chart of the S&P 500 futures contract. The market broke below its previous local lows along the 4,520 level last week. It invalidated a short-term bullish scenario, but on the other hand, it may be too late to enter a short position right now, because of some clear technical oversold conditions.

So, in our opinion, still no positions are justified from the risk/reward point of view. However, the market will likely bounce at some point and a short-covering rally may happen. (chart by courtesy of http://tradingview.com):

Conclusion

The S&P 500 index accelerated its downtrend last week, as it fell slightly below the 4,400 level on Friday. This morning it will most likely extend it even further, as the index is expected to open 1.2% lower. Still, there have been no confirmed positive signals so far. The coming quarterly earnings releases (MSFT on Tuesday, TSLA on Wednesday and AAPL on Thursday, among others) remain a bullish factor for stocks, but there is still a lot of uncertainty concerning Russia-Ukraine tensions.

Here’s the breakdown:

• The S&P 500 is expected to open lower again, as the Russia-Ukraine tensions and Wednesday’s Fed release lead to fear.
• Stocks will most likely bounce at some point, but any rally may be short-lived.
• 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