Briefly:

Intraday trade: The market may extend its short-term fluctuations following recent rebound, as investors take short-term profits off the table. Therefore, we prefer to be out of the market today, avoiding low risk/reward ratio trades. Our Friday's intraday short trade has been closed at the stop-loss level of 2,448 (S&P 500 index). Overall, the S&P 500 index gained 7 points vs. its opening price on Friday. Then, the market continued its short-term uptrend, as it reached Tuesday's high of 2,468.90. So, it is around 20 points above our Friday's intraday stop-loss level.

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 U.S. stock market indexes were virtually flat on Tuesday, as investors hesitated following strong rebound off last week's Thursday's move down. The S&P 500 index has reached new all-time high at the level of 2,490.87 on Tuesday last week. Then, it retraced most of its recent rally, as it fell below the level of 2,440. The broad stock market gauge broke below its few-week-long consolidation along new record high. However, it bounced back to that level on Monday, as it retraced the whole Thursday's sell-off. The Dow Jones Industrial Average got back to the level of 22,000, as it retraced some of its last week's decline. The technology Nasdaq Composite lost 0.1% on Tuesday, as it was relatively weaker than the broad stock market. The nearest important level of resistance of the S&P 500 index is at around 2,465-2,470, marked by some previous level of support and local highs. The next resistance level is at 2,490-2,500, marked by record high. On the other hand, support level is at around 2,450-2,455, marked by Monday's daily gap up of 2,448.09-2,454.96, among others. The next support level remains at 2,435-2,440, marked by last week's local lows. The support level is also at around 2,430-2,435, marked by July 12 daily gap up of 2,429.30-2,435.75. Will uptrend continue? Or is this some topping pattern before another downward reversal?

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently up between 0.2% and 0.3% vs. their yesterday's closing prices. The European stock market indexes have gained 0.7-1.0% so far. Investors will now wait for some economic data announcements: Housing Starts, Building Permits at 8:30 a.m., Crude Oil Inventories at 10:30 a.m., and the FOMC Minutes release at 2:00 p.m. The market expects that Housing Starts were at 1.22M, and the Building Permits were at 1.25M in July. The S&P 500 futures contract trades within an intraday uptrend, as it retraces most of yesterday's intraday decline. The nearest important level of resistance is at around 2,470-2,475, marked by recent local highs. The next resistance level is at 2,480-2,490, marked by record high. On the other hand, support level remains at around 2,460, marked by short-term consolidation. The next level of support remains at 2,445-2,450. The support level is also at 2,430, marked by recent local low. Is this a new uptrend or just upward correction following last week's move down?

Tech Stocks Still Weaker

The technology Nasdaq 100 futures contract follows a similar path, as it retraces yesterday's intraday move down. Will it continue higher? Or is this just short-term topping consolidation? There have been no confirmed negative signals so far. The nearest important resistance level is at around 5,940-5,950, marked by short-term local high. On the other hand, support level is at 5,900, marked by previous short-term resistance level. The next support level is at 5,850-5,870, among others.

Concluding, the S&P 500 index retraced most of its last week's decline on Monday. It fluctuated within relatively narrow trading range yesterday, as investors took short-term profits off the table. Will this uptrend continue? Or is this just consolidation following months-long advance? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions along with negative technical divergences.

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:

No intraday position is justified from the risk/reward perspective today.

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

Thank you.

Paul Rejczak
Stock Trading Strategist
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