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 main U.S. stock market indexes were mixed between 0.0% and +0.4% on Friday, as investors continued to hesitate following the early January rally. All three major stocks market indexes extend their short-term consolidation along all-time highs. The S&P 500 index remains close to January 6 new record high of 2,282.10, and the Dow Jones Industrial Average trades close to round resistance level of 20,000. However, the technology Nasdaq Composite index has reached new record high on Friday. It got closer to 5,600 mark. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? The next possible resistance level of the S&P 500 index is at 2,300 mark. On the other hand, the nearest support level is at around 2,255-2,260, marked by recent local lows. The next support level is at 2,230-2,240, marked by the late December local low. We can see new long-term highs within almost eight-year-long bull market from 2009 multi-year low of 666.8. However, the index remains within its month-long consolidation. It continues to trade along medium-term upward trend line, as we can see on the daily chart:

Expectations before the opening of today's trading session are negative, with index futures currently down 0.2-0.3%, as investors react to global stock markets move down over a long holiday weekend. The European stock market indexes have lost 0.3-0.9% so far. Investors will now wait for the Empire Manufacturing number release at 8:30 a.m. The New York Empire State Index is an index based on the monthly survey of manufacturers in New York State. It is conducted by the Federal Reserve Bank of New York. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its Thursday's rebound off support level at around 2,250. The nearest important resistance level remains at 2,270-2,275, marked by record high, among others. Is this a topping pattern before downward correction of the November - December rally? There have been no confirmed negative signals so far. The futures contract remains within an over week-long consolidation along 2,260-2,270, as the 15-minute chart shows:

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday downtrend. However, it remains relatively close to its Friday's new record high. The nearest important level of resistance is at around 5,050-5,060. On the other hand, support level is at 4,980-5,000, marked by previous level of resistance. For now, it looks like another relatively flat correction within a short-term uptrend. Will the technology Nasdaq 100 futures contract continue its medium-term uptrend? There have been no confirmed negative signals so far. However, we still can see short-term overbought conditions:

Concluding, the broad stock market extended its short-term consolidation on Friday, as investors reacted to economic data, quarterly corporate earnings releases. The S&P 500 index remained relatively close to its all-time high of 2,282.10. Will stocks continue higher before some more meaningful downward correction? There have been no confirmed negative signals so far. We still can see 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 - daily 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