Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, 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 main U.S. stock market indexes lost 0.3% on Monday, slightly extending their short-term downtrend following last week's Wednesday's rally, as investors reacted to economic data releases, global stock markets weakness, among others. The S&P 500 index remains relatively close to its new all-time high of 2,400.98. The Dow Jones Industrial Average closed slightly below 21,000 mark, and the technology Nasdaq Composite index broke below the level of 5,900. All three major stock market indexes continue to trade close to their new record highs. The nearest important level of support of the S&P 500 index is at around 2,365-2,380, marked by Wednesday's daily gap up of 2,367.79-2,380.13. The next support level is at 2,350-2,355, marked by previous daily gap up of 2,351.16-2,354.91. The support level is also at around 2,320. On the other hand, the nearest important level of resistance is at 2,390-2,400, marked by all-time high. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? We can see some short-term volatility following four-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerated on Wednesday, and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index continues to trade above its medium-term upward trend line, as we can see on the daily chart:

Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2%. The European stock market indexes have been mixed so far. Investors will now wait for the Trade Balance number release at 8:30 a.m. The market expects that it was at -$48.5B in January. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its yesterday's late-session move up. The nearest important level of support is at around 2,365-2,370, marked by recent consolidation. The next support level remains at 2,350. On the other hand, resistance level is at 2,380-2,385, marked by some short-term local highs. The next level of resistance is at 2,390-2,400, marked by record high. The market trades within a short-term consolidation following recent move down. Is this a bottoming pattern before upward reversal or just flat correction within a downtrend?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday downtrend. It retraces some of its yesterday's bounce off support level at around 5,340-5,350. The nearest important level of resistance is at 5,365-5,375, marked by short-term consolidation. The next resistance level is at 5,390-5,400, marked by new record high. The future contract remains within its short-term consolidation, as the 15-minute chart shows:

Concluding, the broad stock market slightly extended its short-term downtrend on Monday, as the S&P 500 index traded within last Wednesday's daily gap up following global stock markets decline. For now, it looks like a downward correction within an uptrend. But will the uptrend continue despite some clear short-term overbought conditions? Or is this a topping pattern before some more meaningful downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on Wednesday, February 15 at 2,335.58 - opening price of the S&P 500 index). Stop-loss level is at 2,410 and potential profit target is at 2,200 (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: 2,200; stop-loss level: 2,410
S&P 500 futures contract (March) - short position: profit target level: 2,197; stop-loss level: 2,407
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $220; stop-loss level: $241
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98

Thank you.

Paul Rejczak
Stock Trading Strategist
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