Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).

Our intraday outlook remains 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 between 0.6% and 0.8% on Monday, retracing most of their last week's Tuesday-Wednesday's rally, as investors reacted to global stock markets move down. The S&P 500 index got closer to its previous short-term consolidation along the level of 2,260. The Dow Jones Industrial Average broke slightly below 20,000 mark, and the technology Nasdaq Composite Index moved closer to its support level of 5,600. Technology sector stocks were relatively weaker than the broad stock market despite some quarterly corporate earnings releases' positive expectations. Apple, Facebook, Amazon all report earnings this week. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? The nearest important resistance level of the S&P 500 index is currently at around 2,290, marked by yesterday's daily gap down of 2,286.01-2,291.62. The next resistance level is at 2,300, marked by Thursday's record high of 2.300.99. On the other hand, level of support remains at 2,260-2,270, marked by the above-mentioned short-term consolidation. The next support level is at around 2,230-2,235, marked by the late December local low. We can see some short-term volatility following recent move up. Is this a topping pattern before downward reversal? The S&P 500 index still trades along 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%, as investors continue to take profits off the table following recent rally. The European stock market have gained 0.2-0.5% so far. Investors will wait for more quarterly corporate earnings releases, along with some economic data announcements: Employment Cost Index at 8:30 a.m., S&P Case Shiller Home Price Index at 9:00 a.m., Chicago PMI at 9:45 a.m., Consumer Confidence at 10:00 a.m. The Conference Board Consumer Confidence is a report that details consumer attitudes and buying intentions on monthly basis. The market expects it grew to 114.0 in January from 113.7 in December. The S&P 500 futures contract trades within an intraday consolidation following yesterday's move down. For now, it looks like a relatively flat correction within a short-term downtrend. The nearest important level of resistance is at around 2,775, marked by local highs. The next resistance level is at 2,280-2,285, marked by yesterday's consolidation following a gap down opening. On the other hand, support level is at 2,260-2,265, marked by yesterday's local lows. The futures contract broke below its last week's consolidation along new record highs, as the 15-minute chart shows:

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within a short-term consolidation, following yesterday's decline. Is this a new downtrend or just short-term downward correction before another leg up within medium-term rally? The nearest important level of resistance is at around 5,120-5,130, marked by some local highs. The next resistance level is at 5,150, marked by yesterday's overnight fluctuations. Investors will wait for series of important technology stocks' quarterly corporate earnings releases.

Concluding, the broad stock market retraced its last week's rally on Monday, as the S&P 500 index got back close to its almost two-months-long consolidation along the level of 2,260. Is this just a quick downward correction or some downward reversal? 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 December 14 at 2,268.35 - daily opening price of the S&P 500 index). Stop-loss level remains at 2,330 and potential profit target is at 2,150 (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: 2,150; stop-loss level: 2,330
S&P 500 futures contract (March 2017) - short position: profit target level: 2,145; stop-loss level: 2,325
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $214; stop-loss level: $232
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade's opening price on Dec 14 at $14.78).

Thank you.

Paul Rejczak
Stock Trading Strategist
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