Briefly:

Intraday trade: Our yesterday's intraday trade has proved accurate. The S&P 500 index reached our profit target level of 2,450 and continued lower. Overall, one could gain at least 15 index points, opening short position at the opening of yesterday's trading session.

In our opinion, the S&P 500 is likely to continue lower today, as we expect more downward pressure on U.S. stocks. Therefore, short position is favored. Stop-loss is at the level of 2,448, 10 points above yesterday's closing price. Potential profit target is at 2,415 (S&P 500 index).

Medium-term trade: In our opinion, short position is favored (opened on June 5 at 2,437.83, with stop-loss at 2,510, and profit target at 2,300, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish, as we expect downward correction. Our medium-term outlook remains neutral:

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

The main U.S. stock market indexes lost between 0.9% and 2.1% on Thursday, as investors' sentiment worsened following global stock markets' move down, geopolitical news releases. The S&P 500 index has reached new all-time high at the level of 2,490.87 on Tuesday, before reversing lower. It continued lower on Wednesday and accelerated its move down yesterday. The broad stock market gauge broke below its almost month-long consolidation along new record high. The Dow Jones Industrial Average lost just 0.9%, as it was still relatively stronger. The technology Nasdaq Composite lost 2.1%, as it was relatively weaker than the broad stock market again. The nearest important support level of the S&P 500 index is now at 2,430-2,435, marked by July 12 daily gap up of 2,429.30-2,435.75. The next support level is at 2,400-2,410, marked by some June-July local lows. On the other hand, level of resistance is at 2,450, marked by previous level of support. The next resistance level is at 2,460-2,465, marked by recent fluctuations. Is this a new downtrend or just downward correction following last months' uptrend? We still can see negative medium-term technical divergences. Will the S&P 500 index bounce off its moving averages' area of 2,420-2,460?

Futures Flat

Expectations before the opening of today's trading session are slightly negative, with index futures currently between -0.1% and -0.2% vs. their Thursday's closing prices. The European stock market indexes have lost 0.4-1.1% so far. Investors will now wait for the Consumer Price Index number at 8:30 a.m. The market expects that CPI grew 0.2% in July. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates after yesterday's sell-off. For now, it looks like some flat correction within a short-term downtrend. The nearest important level of support is at around 2,430, marked by local low. The next support level is at 2,400-2,410. On the other hand, level of resistance is at 2,450-2,460, marked by previous support level. The next resistance level remains at 2,480-2,500, marked by record high. The market broke below its short-term consolidation, then it accelerated its move down. Will downtrend continue? There have been no confirmed positive signals so far. However, we can see some short-term oversold conditions:

Nasdaq Still Weaker

The technology Nasdaq 100 futures contract follows a similar path, as it fluctuates within a relatively narrow trading range after yesterday's sell-off. The nearest important level of resistance is at around 5,780-5,800, marked by previous support level. The next resistance level is at 5,830-5,850, among others, as we can see on the 15-minute chart:

Concluding, the S&P 500 index broke below its almost month-long consolidation yesterday, as it fell the lowest since first half of July. Investors' sentiment worsened following news concerning North Korea crisis, economic data releases. The S&P 500 has retraced its recent rally. Is this a new medium-term downtrend or just downward correction? There have been no confirmed positive signals so far.

Therefore, we continue to maintain our short position (opened at 2,437.83 on June 5 - opening price of the S&P 500 index). Stop-loss level is at 2,510 and potential profit target is at 2,300 (S&P 500 index). One 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:

Intraday trade:

S&P 500 index - short position: profit target level: 2,415; stop-loss level: 2,448
S&P 500 futures contract (September) - short position: profit target level: 2,412; stop-loss level: 2,445
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $241.5; stop-loss level: $244.8

Medium-term trade:

S&P 500 index - short position: profit target level: 2,300; stop-loss level: 2,510
S&P 500 futures contract (September) - short position: profit target level: 2,297; stop-loss level: 2,507
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $251
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $12.56; profit target level: $13.98; stop-loss level: $11.82

There will be no Stock Trading Alerts on Monday, August 14, and on Tuesday, August 15. We apologize for inconvenience.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts