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 0.1% and 0.5% on Thursday, extending their short-term fluctuations, as investors reacted to economic data announcements, among others. All the main stock market indexes have reached new all-time highs recently. The S&P 500 index trades just 0.5-0.6% below its new record high of 2,446.20. It has broken above week-long consolidation along 2,400 mark. Stocks have rebounded strongly after 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 close to Wednesday's new record high of 21,391.97. The technology Nasdaq Composite extended its short-term downtrend, as it fell below Monday's local low, before bouncing off support level at 6,100. 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 within a two-week-long consolidation, as we can see on the daily chart:

Mixed Expectations

Expectations before the opening of today's trading session are slightly positive following an overnight move up, with index futures currently up 0.1% vs. their Thursday's closing prices. The European stock market indexes have gained 0.4-0.7% so far. Investors will now wait for some economic data announcements: Housing Starts, Building Permits at 8:30 a.m., Michigan Sentiment number at 10:00 a.m. The market expects that Housing Starts were at 1227K, Building Permits were at 1250K in May, and Michigan Sentiment (preliminary number) was at 97.0 in June. The S&P 500 futures contract trades within an intraday consolidation, as it fluctuates following yesterday's rebound off support level at around 2,415-2,420. The nearest important level of resistance is at 2,440-2,445, marked by last Friday's new all-time high. The market trades within a short-term consolidation, as it is still above the early March local high. Is this a topping pattern before downward reversal? Or just relatively flat correction within an uptrend?

Sideways After Sell-Off

The technology Nasdaq 100 futures contract follows a similar path, as it is currently trading within an intraday consolidation. The market retraces its recent move down again, as it gets back above the level of 5,700. The nearest important level of resistance is at around 5,750-5,800, marked by recent consolidation. On the other hand, support level is at around 5,680-5,700, marked by previous level of resistance. The next important level of support is at 5,640-5,650. For now, it looks like a consolidation following last Friday's sell-off. Will the market continue its move down, or is this some bottoming pattern before upward reversal?

Concluding, the S&P 500 index slightly extended its short-term move down on Thursday, before bouncing off support level. The broad stock market remains close to its last Friday's new record high. Will the eight-year-long bull market continue? Or is this some topping pattern before downward reversal? 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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