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 gained 0.1-0.2% on Tuesday, slightly extending their short-term uptrend, as investors' sentiment remained bullish following last week's rebound off support level. The S&P 500 index got closer to its May 16 all-time high of 2,405,77 again. The Dow Jones Industrial Average closed above the level of 20,900, and the technology Nasdaq Composite index closed above the level of 6,100. Is last week's rebound an upward reversal or just correction within a new short-term downtrend? The nearest important level of support of the S&P 500 index is now at 2,380-2,390, marked by short-term local lows, among others. The next support level is at 2,370, marked by local low. The support level is also at 2,355, marked by the late April daily gap up. On the other hand, resistance level is at around 2,400-2,405, marked by the above-mentioned new record high. Is this a topping pattern before medium-term downward reversal? The uptrend accelerated on March 1 and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index trades below 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 positive, with index futures currently between 0.0% and +0.1%, following an overnight consolidation. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: Existing Home Sales number at 10:00 a.m., Crude Inventories at 10:30 a.m. The market expects that the Existing Home Sales were at 5.65M in April. The S&P 500 futures contract trades within an intraday uptrend, as it gets closer to yesterday's local high. The nearest important level of resistance is at 2,400-2,405, marked by record high. On the other hand, support level remains at around 2,390, marked by short-term local low. The next important level of support is at 2,380-2,385. The market trades within a short-term uptrend off last week's Thursday's overnight lows. Is this a new uptrend or just an upward correction before another leg down?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday uptrend. It extends its recent move up, as it gets closer to record high above the level of 5,720. The nearest important level of resistance is at around 5,720-5,730. On the other hand, support level is currently at around 5,690-5,700, marked by previous level of resistance. The next important level of support is at 5,650-5,660, marked by recent consolidation, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term uptrend on Tuesday, as it got closer to May 16 record high of 2,405.77. Will the market break above its three-month long consolidation? Or is this just an upward correction? We still can see medium-term negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on 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 (June) - 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
Stock Trading Alerts