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 lost between 0.5% and 1.6% on Tuesday, as investors' sentiment worsened following Monday's intraday reversal. The S&P 500 index got closer to its recent local lows at the level of 2,420. The broad stock market index is now trading around 1.4% below last week's new 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 strongly 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 strong, as it lost just 0.5% yesterday. It is trading slightly above the level of 21,300. The technology Nasdaq Composite was relatively weaker than the broad stock market yesterday, as it lost 1.6% following some big tech stocks sell-off. 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 support level is also 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 2,430, marked by previous level of resistance, and the next resistance level is 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 three-week-long consolidation, as we can see on the daily chart:

Another Leg Down?

Expectations before the opening of today's trading session are mixed, with index futures currently between -0.1% and 0.2% vs. yesterday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Pending Home Sales number at 10:00 a.m., Crude Inventories at 10:30 a.m. The market expects that Crude Inventories fell 2.1M last week. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following yesterday's move down. The nearest important level of support is at 2,415, marked by some recent local lows. The next support level is at 2,400. On the other hand, resistance level is at 2,425-2,430, marked by previous level of support. The next level of resistance is at around 2,445-2,450, marked by record high, among others. The market retraces some of its recent move up yesterday, as it gets close to short-term local lows. Will it continue lower?

Techs Relatively Weaker

The technology Nasdaq 100 futures contract trades within an intraday consolidation after its yesterday's sell-off. The market has retraced all of its rebound off last week's lows. It looked like an upward correction within a new downtrend. Will it extend its move down? The nearest important support level is at around 5,630-5,650, marked by some local lows, and the next support level is at 5,600. On the other hand, resistance level is at 5,680-5,700, marked by previous level of support, as the 15-minute chart shows:

Concluding, the S&P 500 index continued its short-term move down yesterday, as it followed Monday's intraday bearish reversal. Is this a new downtrend or just more consolidation along record highs? There have been no confirmed negative signals so far. However, we still can see negative technical divergences, along with 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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