Briefly: In our opinion, speculative short positions are favored (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. 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 were mixed between -0.5% and +0.6% on Monday, as investors hesitated following last week's volatility. The S&P 500 index fell the lowest since end of May on Thursday, as it got closer to support level of 2,400. It is now trading around 1% below its June 19 all-time high of 2,453.82. It has reached new record high after a breakout above short-term consolidation along the level of 2,420-2,440. Stocks have rebounded sharply following their mid-May quick two-session sell-off and continued over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average remained relatively stronger on Monday, as it gained 0.6%. It has managed to get close to the level of 21,500 again. The technology Nasdaq Composite was relatively weaker than the broad stock market, as it lost 0.5%. The nearest important support level of the S&P 500 index is at around 2,415-2,420, marked by some recent local lows. The next support level is at 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. On the other hand, level of resistance is at 2,425-2,430, marked by some recent fluctuations. The next resistance level remains at 2,450-2,455, marked by all-time high. There have been no confirmed negative signals so far. However, we can see overbought conditions and negative technical divergences. The S&P 500 index is trading within its a month-long consolidation, as we can see on the daily chart:

Mixed Expectations

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.1% and +0.1% vs. their Monday's closing prices. The European stock market indexes have gained 0.1-0.2% so far. Investors will now wait for some economic data announcements: Factory Orders number at 10:00 a.m., the FOMC Minutes release at 2:00 p.m. The market expects that Factory Orders fell 0.5% in May. The S&P 500 futures contract trades within an intraday consolidation, as it extends its recent fluctuations following last week's Thursday's move down. The nearest important level of resistance is at around 2,430-2,440, marked by local highs. The next resistance level is at 2,445-2,450, marked by record high. On the other hand, support level is at 2,420, marked by an intraday consolidation, and the next support level is at 2,400-2,410, marked by Thursday's local low. Which direction is next? Will the market break below this short-term consolidation?

Nasdaq Remains Weak

The technology Nasdaq 100 futures remains relatively weaker than the broad stock market, as it currently trades along new short-term lows following Monday's sell-off. The nearest important level of resistance is at around 5,600-5,620, and the next resistance level is at 5,650-5,700, marked by recent local high. On the other hand, support level is at 5,550, marked by local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term consolidation on Monday, as investors continued to hesitate following last week's Thursday's move down. Is this a topping pattern before some medium-term downward correction? Or just flat correction within an uptrend, before another leg up? There have been no confirmed negative signals so far. However, we still can see negative technical divergences, along with some medium-term overbought conditions.

Therefore, we continue to maintain our speculative 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). 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: 2,300; 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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