Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P 500 index).

Our intraday outlook is now bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 index breakout above last year's all-time high:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): neutral
Long-term outlook (next year): neutral

The U.S. stock market indexes gained 0.1% on Monday, slightly extending their Friday's move up, as investors' sentiment remained bullish. The S&P 500 index has managed to reach yet another new all-time high at the level of 2,371.54. The Dow Jones Industrial Average continued to trade above the level of 20,800, and the technology Nasdaq Composite index got closer to recent record high. All three major indexes trade along their all-time highs. The nearest important level of support of the S&P 500 index is at around 2,350-2,355, marked by last Tuesday's daily gap up of 2,351.16-2,354.91. The next support level is at 2,320, marked by previous daily gap up of 2,319.23-2,321.42. The support level is also at around 2,300-2,310, marked by previous level of resistance and the early February daily gap up of 2,311.08-2,311.10. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? We can see some short-term volatility following three-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerated, and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index trades above its medium-term upward trend line, as we can see on the daily chart:

Expectations before the opening of today's trading session are virtually flat, with index futures currently between 0.0% and +0.1%, as investors continue to take some short-term profits off the table. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: GDP number - second estimate, Wholesale Inventories at 8:30 a.m., Chicago PMI at 9:45 a.m., Consumer Confidence at 10:00 a.m. The market expects that the Consumer Confidence number grew to 112.1 in February. Investors will also wait for today's Donald Trump's address to Congress. The S&P 500 futures contract trades within an intraday consolidation, as it extends its yesterday's fluctuations along new record high. The nearest important level of resistance is at 2,370, marked by new all-time high. On the other hand, support level is at around 2,350-2,355, marked by recent fluctuations. The next support level is at 2,335-2,340, marked by some previous local lows. There have been no confirmed negative signals so far. However, we can see short-term overbought conditions, along with negative technical divergences. Is this a topping pattern or just some short-term consolidation before another leg up?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation. The technology sector stocks were relatively stronger than the broad stock market on Friday. However, the market hasn't reached new all-time high recently. The nearest important support level is at around 5,280-5,300, marked by previous level of resistance. On the other hand, resistance level is at 5,350, marked by local high. The futures contract trades within a short-term consolidation, as the 15-minute chart shows:

Concluding, the broad stock market extended its short-term consolidation on Monday, as the S&P 500 index continued to trade along its new all-time high. Will the uptrend continue despite some clear short-term overbought conditions? Or is this a topping pattern before downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on Wednesday, February 15 at 2,335.58 - opening price of the S&P 500 index). Stop-loss level is at 2,410 and potential profit target is at 2,200 (S&P 500 index). You 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: 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:

S&P 500 index - short position: profit target level: 2,200; stop-loss level: 2,410
S&P 500 futures contract (March) - short position: profit target level: 2,197; stop-loss level: 2,407
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $220; stop-loss level: $241
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98

Thank you.

Paul Rejczak
Stock Trading Strategist
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