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 0.1-0.2% on Tuesday, following volatile trading session, as investors took short-term profits off the table. The S&P 500 index has reached new all-time high at the level of 2,490.87, before reversing lower. The broad stock market gauge bounced off resistance level at around 2,490-2,500 following some negative geopolitical news. The Dow Jones Industrial Average has also reached new record high at the level of 22,179.1 yesterday. It extended its record-setting series even further, before closing slightly lower. The technology Nasdaq Composite lost 0.2% on Monday, after retracing more of its recent weakness. The nearest important support level of the S&P 500 index remains at 2,460-2,465, marked by July 19 daily gap up of 2,460.92-2,463.85. The next level of support is at 2,450-2,455, marked by June 19 local high. The support level is also at 2,430-2,435, marked by July 12 daily gap up of 2,429.30-2,435.75. On the other hand, level of resistance is at 2,485-2,490, marked by all-time high along with previous local high. The next resistance level is at 2,500 mark. There have been no confirmed negative signals so far. However, we can see medium-term overbought conditions and negative technical divergences. The S&P 500 index trades within an almost month-long consolidation, as we can see on the daily chart:

Uptrend Reversal?

Expectations before the opening of today's trading session are negative, with index futures currently down between 0.1% and 0.5% vs. yesterday's closing prices. The European stock market indexes have lost 0.7-1.5% so far. Investors will now wait for some economic data announcements: Wholesale Inventories at 10:00 a.m., Crude Inventories at 10:30 a.m. The market expects that Crude Inventories fell 2.6M last week. The S&P 500 futures contract trades within an intraday consolidation, following an overnight move down. The market extended Tuesday's move down. The nearest important resistance level is at around 2,465-2,470, marked by local highs. The next resistance level remains at 2,480-2,490, marked by record high. On the other hand, support level is at 2,460, marked by short-term local low. The next support level remains at 2,450, among others. Is this a new downtrend or just downward correction before another leg up?

Nasdaq Relatively Weaker

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation after an overnight move down. The nearest important level of resistance is at around 5,900, marked by previous level of support. The next resistance level remains at 5,950-6,000. On the other hand, support level is at 5,850-5,870, marked by short-term local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index reached new record high on Tuesday, before reversing and closing lower. Is this an uptrend reversal or just some downward correction? The broad stock market extends its few-week-long consolidation so far. But will long-term uptrend continue? 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
Stock Trading Alerts