Briefly:

Intraday trade: The S&P 500 index may slightly extend its short-term advance today. However, there are some technical overbought conditions that may lead to a downward correction. Therefore, we prefer to be out of the market again, avoiding low risk/reward ratio trades.

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

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

The main U.S. stock market indexes gained between 0.3% and 1.0% on Thursday, extending their short-term uptrend following better-than-expected economic data releases, end-of-month sentiment improvement, among others. The S&P 500 index broke above its short-term consolidation along the level of 2,440-2,450 on Wednesday and continued its advance yesterday. It is currently trading just 0.8% below the August 8 all-time high of 2,490.87. The Dow Jones Industrial Average was relatively weaker than the broad stock market again, as it gained just 0.3% yesterday. The technology Nasdaq Composite gained 1.0%. It has almost reached the level of its July 27 record high. The nearest important level of resistance of the S&P 500 index is now at around 2,475, marked by previous local high. The next resistance level is at 2,490-2,500, marked by the above-mentioned all-time high. On the other hand, support level is at 2,460-2,465, marked by yesterday's daily gap up of 2,460.31-2,462.65. The next level of support is at 2,450, marked by some recent fluctuations. The support level is also at 2.430-2,435, marked by last Tuesday's daily gap up and Wednesday's daily low. The market has retraced most of its recent downtrend, as it broke above 2,450 mark. Will uptrend continue? Or is this just an upward move within a medium-term consolidation? The S&P 500 index gets closer to its early August record high, as we can see on the daily chart:

Ahead Of Jobs Report Release

Expectations before the opening of today's trading session are positive, with index futures currently up 0.1-0.2% vs. their Thursday's closing prices. The European stock market indexes have gained 0.2-0.8% so far. Investors will now wait for some important economic data announcements: Nonfarm Payrolls, Unemployment Rate at 8:30 a.m., ISM Index, Construction Spending at 10:00 a.m. The market expects that Nonfarm Payrolls change was at +180,000 in August. The S&P 500 futures contract trades within an intraday uptrend, as it extends its recent rally. The nearest important level of support is at around 2,470, marked by an overnight consolidation. The next level of support is at 2,450-2,460. On the other hand, level of resistance is at 2,480-2,500, marked by record highs. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions. The futures contract trades below its recent upward trend line. Will the broad stock market index break above its August record high today?

Nasdaq At Record High

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades along new record high. For the first time in history, it is above the level of 6,000. The nearest important support level is at around 5,990, marked by previous level of resistance. The next support level is at 5,950, among others. Will the rally continue despite some clear short-term overbought conditions? The Nasdaq futures contract also trades below recent upward trend line, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term uptrend on Thursday, as investors' sentiment continued to improve. Will this uptrend accelerate towards new record highs today? Or is this some topping pattern before another downward reversal within an over-month-long consolidation? There have been no confirmed short-term negative signals so far. However, we still can see some medium-term overbought conditions along with negative technical divergences.

Therefore, we continue to maintain our medium-term 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: medium-term 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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