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 were virtually flat on Thursday, as investors continued to hesitate following economic data, quarterly earnings releases. The S&P 500 index has reached new all-time high at the level of 2,453.82 on Monday after a breakout above its short-term consolidation along the level of 2,420-2,440. It is currently trading around 0.7% below that new record high. 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 has reached yet another new all-time high at the level of 21,535.03 on Tuesday. The technology Nasdaq Composite was relatively stronger than the broad stock market yesterday, as it retraced more of its recent move down. However, it continued to trade well below June 9 high. The nearest important support level of the S&P 500 index is at around 2,430-2,435, marked by Monday's daily gap up of 2,433.15-2,441.79. The next level of support is at 2,415-2,420, marked by some recent local lows. The support level is also at 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. On the other hand, level of resistance is at 2,450-2,455, marked by new all-time high. There have been no confirmed negative signals so far. However, we can see overbought conditions and negative technical divergences. The S&P 500 index is trading within its over two-week-long consolidation again, as we can see on the daily chart:

Slightly Negative Expectations

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2% vs. their Thursday's closing prices. The European stock market indexes have lost 0.5-0.6% so far. Investors will now wait for the New Home Sales number announcement at 10:00 a.m. The market expects that it was at 599,000 in May. The S&P 500 futures contract trades within an intraday downtrend, as it gets closer to recent local lows along the support level of 2,425-2,430, marked by Monday's gap-up opening, among others. The next support level is at around 2,415-2,420, marked by recent local lows. The nearest important level of resistance is at around 2,435-2,440, marked by short-term local highs. The market extends its short-term consolidation, as it continues to trade along new record highs. Is this a topping pattern before downward reversal or just flat correction within an uptrend? There have been no confirmed negative signals so far.

Techs Rebounded, What's Next?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday downtrend. It has retraced some more of June 9 sell-off recently. The nearest important level of resistance is at around 5,800-5,810. The next resistance level is at 5,840-5,850, marked by some previous short-term local lows. On the other hand, support level is at around 5,770, marked by local lows. The next support level is at 5,750, among others, as the 15-minute chart shows:

Concluding, the S&P 500 index remained unchanged on Thursday, as it continued to trade within a short-term consolidation along all-time high. Will the broad stock market extend its uptrend? Or is this some topping pattern before more meaningful downward correction? 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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