Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,070 and profit target at 1,940, S&P 500 index)

Our intraday outlook remains bearish, and our short-term outlook is bearish:

Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): bearish
Long-term outlook (next year): bullish

The main U.S. stock market indexes lost 1.5-2.1% on Monday, extending their short-term downtrend, as investors reacted to Asian stock markets sell-off, among others. The S&P 500 index broke slightly below 2,000 mark, before bouncing off support level of 1,990-2,000. On the other hand, resistance level is at around 2,040, marked by yesterday's daily gap down of 2,038.20-2,043.62. The next important level of resistance remains at 2,080-2,100, marked by previous local highs. There is no clear medium-term direction, as the market continues to trade within two-month long consolidation following October rally. Will it break down below support level of 2,000 and re-visit last year's August - September lows? It seems like a growing possibility right now:

Expectations before the opening of today's trading session are negative, with index futures currently down 0.5-0.6%. The European stock market indexes have lost 0.1-0.6% so far. The S&P 500 futures contract trades within an intraday downtrend, as it retraces yesterday's rebound off support level of 1,980. The nearest important level of resistance is at around 2,000-2,010. There have been no confirmed short-term positive signals so far. For now, it looks like a relatively flat correction within a short-term downtrend, as we can see on the 15-minute chart:

The technology Nasdaq 100 futures contract follows a similar path, as it currently fluctuates along the level of 4,500. The nearest important level of resistance is at 4,500-4,520. On the other hand, support level is at 4,430-4,450, marked by yesterday's lows. There have been no confirmed short-term positive signals so far. It looks like a flat correction within a downtrend, as the 15-minute chart shows:

Concluding, the broad stock market sold off sharply on the first trading day of the New Year, as investors reacted to Asian stock markets rout, among others. It is hard to say whether this is a new downtrend leading to last year's August - September lows' re-test or just another volatile pull-back within two-month long consolidation, but we continue to maintain our already profitable speculative short position (2,077.34, S&P 500 index). We expect a medium-term downward correction or an uptrend reversal. The stop-loss level remains at 2,070, and profit target level is at 1,940. 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.

Thank you.

Paul Rejczak
Stock Trading Strategist
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