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 now 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 0.2% and 0.5%, slightly extending their Friday's move down, as investors continued to take short-term profits off the table following late May rally. All the main stock market indexes have reached new all-time highs on Friday. The S&P 500 index trades just 0.6-0.7% below its new record high of 2,446.20. It has broken above week-long consolidation along 2,400 mark recently. Stocks have rebounded strongly after their mid-May quick two-session sell-off and continued their over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average remained above the level of 21,200 yesterday. The technology Nasdaq Composite index lost 0.5%, as it was still relatively weaker than the broad stock market. It has closed slightly below the level of 6,200, following Friday's move to new record high of 6,341.70. The nearest important resistance level of the S&P 500 index remains at around 2,440-2,450, marked by new record high, among others. On the other hand, support level is at around 2,415-2,420, marked by previous resistance level. 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. The support level is also at 2,390-2,395, marked by some short-term local lows. Will the uptrend continue towards 2,500 mark? There have been no confirmed negative signals so far. However, we can see some overbought conditions and negative technical divergences. The S&P 500 index is currently trading below its November-April upward trend line, as we can see on the daily chart:

Sentiment Improves

Expectations before the opening of today's trading session are positive, with index futures currently up 0.1-0.2% vs. their Monday's closing prices. The European stock market indexes have gained 0.1-0.6% so far. Investors will now wait for the Producer Price Index number release at 8:30 a.m. The market expects that Producer Prices were unchanged, and Producer Prices core number grew 0.2% in May. The S&P 500 futures contract trades within an intraday consolidation, following an overnight move up. The nearest important resistance level is at around 2,435-2,445, marked by Friday's new all-time high, among others. On the other hand, support level is at 2,430, marked by recent fluctuations. The next level of support is at 2,415-2,420, marked by recent local lows. The support level is also at 2,400-2,410. The market trades within a short-term consolidation, as it is above the early March local high. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions, along with negative technical divergences:

New Uptrend Or Just Rebound?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation, after an overnight advance. The nearest important level of resistance is at around 5,740-5,750, marked by recent local highs. The next resistance level is at 5,800. On the other hand, support level remains at 5,670-5,700, marked by short-term local lows. The next important level of support is at around 5,635-5,650, marked by yesterday's low. For now, it looks like an upward correction within a short-term downtrend. But will the market retrace some more of its Friday's sell-off? There have been no confirmed positive signals so far:

Concluding, the S&P 500 index extended its short-term consolidation on Friday, as the broad stock market remained relatively stronger than technology stocks. Will the uptrend resume? Or is this some topping pattern before downward reversal? There have been no confirmed negative signals so far. However, we can see some negative technical divergences, along with medium-term overbought conditions.

Therefore, we continue to maintain our speculative short position (opened at 2,437.83 on Monday, 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 (March) - 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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