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 0.6% and 1.0% on Tuesday, retracing their last week's decline, as investors' sentiment improved following global stock markets rally. The S&P 500 index continues to trade relatively close to its December 13 all-time high of 2,277.53. For now, it looks like a flat correction within an uptrend off last year's early November low. But will the market extend its year-long uptrend even further before some more meaningful downward correction? The nearest important level of resistance remains at around 2,260-2,280, marked by record highs. The next resistance level is at 2,300 mark. On the other hand, support level is at 2,200-2,220, marked by previous level of resistance. The next support level is at 2,150, marked by November consolidation, among others. The index continues to trade along its medium-term upward trend line, as the daily chart shows:

Expectations before the opening of today's trading session are slightly positive, following yesterday's advance. The index futures are currently up 0.1-0.2%. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Crude Inventories at 10:30 a.m., FOMC Minutes release at 2:00 p.m. The S&P 500 futures contract trades within an intraday consolidation following an overnight move up. It continues to trade above Friday's local highs along the level of 2,250. The next important level of resistance is at around 2,260-2,280, marked by previous consolidation along record highs. On the other hand, support level is at yesterday's local low of 2,240, among others. The next support level is at around 2,225-2,230, marked by Friday's local low. For now, it looks like an upward correction within a short-term downtrend. The market remains slightly below its recent trading range, as we can see on the 15-minute chart:

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation. The market has retraced most of its Friday's sell-off following a bounce off support level at around 4,850. The nearest important level of resistance is at around 4,920-4,930, marked by yesterday's local high, and the next resistance level is at 5,000 mark. For now, it looks like an upward correction within a short-term downtrend. Will the technology Nasdaq 100 futures contract resume its medium-term uptrend and break above round resistance level of 5,000? There is no clear short-term direction, as technology stocks fluctuate following November - December rally:

Concluding, the broad stock market retraced some of its recent decline on the first trading session of the new year, as investors' sentiment improved sharply following global stock markets rally. Is this a new short-term uptrend or just upward correction within a short-term downtrend? The S&P 500 index remains slightly below its December trading range, marked by record high of 2,277.53, among others. We still can see some medium-term overbought conditions accompanied by negative technical divergences. 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 remains 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