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.

Stock prices extended their downtrend once again on Tuesday, as the S&P 500 index fell to new medium-term low. Will the market bounce despite inflation fears?

The S&P 500 index lost 0.65% on Tuesday, following its Monday’s decline of 0.8%, as it extended the downtrend on news from the Bank of England about a possible ending of their easing monetary actions. Yesterday the index reached new medium-term low of 3,568.45. Last week on Wednesday, the daily high was at 3,806.91 and stock prices reversed sharply lower after better-than-expected monthly jobs data release on Friday. There’s still a lot of fear concerning Central Banks’ tightening monetary policies, Russia-Ukraine war and an energy crisis.

This morning the S&P 500 will likely open 0.3% higher despite the Producer Price Index release (+0.4% vs. the expected +0.2% m/m). Investors will be waiting for tomorrow’s CPI, Friday’s Retail Sales releases, and the coming quarterly earnings season.

Futures Contract Trades Along Previous Bottom

Let’s take a look at the hourly chart of the S&P 500 futures contract. Last week it went above the 3,800 level, but on Friday it reversed almost all of the rally. Yesterday the market continued to fluctuate along the previous low. The support level remains at 3,550-3,600.

In our opinion, no positions are currently justified from the risk/reward point of view. (chart by courtesy of http://tradingview.com):

Conclusion

Stock prices are expected to open slightly higher this morning. We’ll likely see a consolidation following the recent sell-off. Investors will be waiting for more economic data releases. For now, it looks like a flat correction within a downtrend. However, the market may also be forming a short-term bottom here.

Here’s the breakdown:

• S&P 500 reached new bear market low yesterday; it may be nearing a short-term bottom.
• In our opinion, the short-term outlook is neutral.

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