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 were mixed between 0.0% and +0.4% on Thursday, as investors continued to hesitate following recent rally. The S&P 500 index trades just 0.3-0.4% below its last Friday's new all-time high of 2,440.23. 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. They continue their over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average remained below the level of 21,200 on Thursday, following last Friday's advance to new record high of 21,225.04. The technology Nasdaq Composite remains relatively stronger than the broad stock market, as it continues to trade along the new record level of 6,324.06. The nearest important resistance level of the S&P 500 index is at around 2,440-2,450, marked by new record high, among others. On the other hand, support level is currently 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 close to its November-April upward trend line, as we can see on the daily chart:

Positive Expectations, But Will Uptrend Continue?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.1-0.2% vs. their Friday's closing prices. The European stock market indexes have gained 0.4-0.6% so far. Investors will now wait for the Wholesale Inventories number release at 10:00 a.m. The market expects that it fell 0.1% in April. The S&P 500 futures contract trades within an intraday uptrend, as it gets closer to last Friday's record high along the level of 2,440, following a quick overnight decline. The nearest important resistance level is at around 2,435-2,440. On the other hand, support level is at 2,425-2,430, marked by recent local lows. The next support level remains at 2,400-2,410. The market trades within a short-term uptrend, 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:

Technology Stocks Trade Along New Record High, As Investors' Sentiment Remains Very Bullish

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation along the level of its new all-time high. The market extended six-week-long rally following late April breakout above the level of 5,500. The nearest important level of resistance is at around 5,890-5,900. Potential level of resistance is also at 6,000 mark. On the other hand, the nearest important level of support is at around 5,830-5,850, marked by recent fluctuations. The next support level is at 5,800-5,820, marked by short-term consolidation. There have been no confirmed negative signals so far. But will technology stocks continue their rally despite some clear short-term overbought conditions? We can see some negative technical divergences:

Concluding, the S&P 500 index extended its short-term consolidation yesterday, as the broad stock market remained close to its last Friday's record high. It continued the uptrend after a breakout above early March high along the level of 2,400. But will this run-up extend even further despite some negative technical divergences and overbought conditions? Is this some topping pattern before downward reversal or just another flat correction within an uptrend? There have been no confirmed negative signals so far. However, we continue to maintain our speculative short position (opened at 2,437.83 on Monday - 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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