Briefly:

Intraday trade: Our Friday's neutral intraday outlook has proved accurate. The S&P 500 index fluctuated following Tuesday-Thursday's rally. The S&P 500 index may continue to fluctuate or retrace some of its recent move up this week. There are technical overbought conditions that may lead to a downward correction. Therefore, intraday short position is favored today. Stop-loss is at the level of 2,485 or 5 points above Friday's daily high. Potential profit target level is at 2,455 or 22 points below Friday's closing price. (S&P 500 index).

Medium-term trade: In our opinion, short position is favored (opened on June 5 at 2,437.83, with stop-loss at 2,510, and profit target at 2,300, S&P 500 index).

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

Intraday outlook (next 24 hours): bearish
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 +0.1% and +0.2% on Friday, as investors took some short-term profits off the table following last week's rally. There was uncertainty ahead of long holiday weekend. The S&P 500 index got close to its August 8 all-time high of 2,490.87, after bouncing off Tuesday's local low slightly below the level of 2,430. It currently trades just 0.6% below the record high. The Dow Jones Industrial Average remained close to the level of 22,000 on Friday, and the technology Nasdaq Composite traded very close to its July 27 all-time high of 6,460.8. The nearest important level of resistance of the S&P 500 index is now at around 2,490-2,500, marked by the above-mentioned all-time high. On the other hand, support level is at 2,460-2,465, marked by Thursday's daily gap up of 2,460.31-2,462.65. The next level of support is at 2,450, marked by recent fluctuations. The support level is also at 2.430-2,435, marked by last Tuesday's daily gap up and Wednesday's daily low. The market retraced its mid-August downtrend, as it got close to record high again last week. Will uptrend continue? Or is this just an upward move within a medium-term consolidation? The S&P 500 index trades along its previously broken upward trend line, as we can see on the daily chart:

Will Rally Continue?

Expectations before the opening of today's trading session are slightly negative, with index futures currently down between 0.2% and 0.4% vs. their Friday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for the Factory Orders number release at 10:00 a.m. The market expects that it fell 3.3% in July. The S&P 500 futures contract trades within a slight intraday downtrend, as it retraces its overnight move up. The market fluctuates following Monday's opening gap down after North Korea crisis news release. The nearest important level of support is at 2,460, marked by local low. The next level of support is at around 2,450. On the other hand, level of resistance is at 2,475-2,480, marked by Friday's local high. The next resistance level is at 2,490-2,500, marked by record high. The futures contract broke slightly below its last week's upward trend line, as the 15-minute chart shows:

Nasdaq Close To Record High

The technology Nasdaq 100 futures contract follows a similar path, as it extends yesterday's fluctuations following a lower opening vs. its Friday's closing price. The nearest important support level is at around 5,950, marked by short-term local low. The next level of support is at 5,900. On the other hand, level of resistance is at 6,000-6,020, marked by new record highs. For now, it looks like relatively flat correction within a short-term uptrend:

Concluding, the S&P 500 index slightly extended its short-term uptrend on Friday, as it got closer to August 8 all-time high. Will long-term bull market continue towards new record highs this week? Or is this some topping pattern before another downward reversal within an over-month-long consolidation? There have been no confirmed short-term negative signals so far. However, we still can see some medium-term overbought conditions along with negative technical divergences.

Therefore, 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). Stop-loss level is at 2,510 and potential profit target is 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:

S&P 500 index - short position: profit target level: 2,455; stop-loss level: 2,485
S&P 500 futures contract (September) - short position: profit target level: 2,452; stop-loss level: 2,482
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $245.5; stop-loss level: $248.5

Medium-term trade:

S&P 500 index - short position: profit target level: 2,300; stop-loss level: 2,510
S&P 500 futures contract (September) - short position: profit target level: 2,297; stop-loss level: 2,507
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $251
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $12.56; profit target level: $13.98; stop-loss level: $11.82

Thank you.

Paul Rejczak
Stock Trading Strategist
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