Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).

Our intraday outlook remains 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 between 0.1% and 0.5% on Tuesday, extending their short-term consolidation, as investors hesitated following long holiday weekend, ahead of year's end. The S&P 500 index continues to trade close to its record high of 2,277.53, as it remains above 2,250 mark. For now, it looks like a flat correction within a medium-term uptrend. The nearest important level of resistance is at around 2,275-2,280. The next resistance level is at 2,300 mark. On the other hand, support level is at 2,240-2,250, marked by previous level of resistance. The next important support level remains at 2,200-2,220. The market broke above its medium-term upward trend line recently, as we can see on the daily chart:

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2-0.3%. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Pending Home Sales at 10:00 a.m., Crude Inventories at 10:30 a.m. The S&P 500 futures contract trades within an intraday uptrend following Tuesday's after-hours move down. The nearest important level of resistance is at around 2,265-2,270, marked by previous consolidation, along with some local highs. The next resistance level is at around 2,275, marked by all-time high. On the other hand, support level remains at 2,250, marked by some recent local lows. There have been no confirmed negative signals so far. Is this a topping pattern or just short-term consolidation before another leg up?

The technology Nasdaq 100 futures contract is relatively stronger than the broad stock market following yesterday's move to new all-time high. It peaked just below 5,000 mark. The nearest important level of resistance is at around 4,980-5,000, marked by record high. On the other hand, support level is at around 4,950 and the next support level is at 4,900-4,920, marked by short-term local lows, as the 15-minute chart shows:

Concluding, the broad stock market extended its short-term consolidation yesterday, as the S&P 500 index remained close to its all-time high. Is this a flat correction within an uptrend or some topping pattern before downward reversal? We still can see technical overbought conditions. Therefore, we continue to maintain our speculative short position (opened on December 14 at 2,268.35 - opening price of the S&P 500 index). Stop-loss level is at 2,330 and potential profit target is at 2,150 (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: 2,150; stop-loss level: 2,330
S&P 500 futures contract (March 2017) - short position: profit target level: 2,145; stop-loss level: 2,325
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $214; stop-loss level: $232
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade's opening price on Dec 14 at $14.78).

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts