Briefly: In our opinion, speculative long positions are favored (with stop-loss at 1,860, and profit target at 1,950, S&P 500 index). The current position is long S&P 500 index at 1,835.
Our intraday outlook is bullish, and our short-term outlook is bullish, as we expect an upward correction or downtrend's reversal. Our medium-term outlook remains bearish, as the S&P 500 index extends its lower highs, lower lows sequence. We decided to change our long-term outlook to neutral recently, following a move down below medium-term lows:
Intraday outlook (next 24 hours): bullish
Short-term outlook (next 1-2 weeks): bullish
Medium-term outlook (next 1-3 months): bearish
Long-term outlook (next year): neutral
The U.S. stock market indexes gained between 1.4% and 2.1% on Tuesday, extending their Friday's move up, as investors reacted to global stock markets' rebound, among others. The S&P 500 index got close to the level of 1,900, as it retraced some more of its recent move down. The nearest important level of resistance is at around 1,900 mark, and the next resistance level is at 1,930-1,950, marked by early February local high. On the other hand, support level is at 1,870, marked by yesterday's daily gap up of 1,864.78-1,871.44. For now, it looks like a consolidation following first half of January sell-off. Will it continue downwards? Or is the bullish downtrend's reversal scenario currently in play? Last year's August - September lows continue to act as medium-term support level, as we can see on the daily chart:
Expectations before the opening of today's trading session are positive, with index futures currently up 0.6-0.7%. The main European stock market indexes have been mixed so far. Investors will now wait for series of economic data announcements: Producer Price Index, Housing Starts, Building Permits at 8:30 a.m., Industrial Production, Capacity Utilization at 9:15 a.m., Crude Inventories at 10:30 a.m., FOMC Minutes release at 2:00 p.m. The S&P 500 futures contract trades within an intraday uptrend, as it breaks above yesterday's daily high. It currently trades along the level of 1,900. The nearest important level of support remains at around 1,880, marked by an intraday local low. There have been no confirmed short-term negative signals so far. But will the market extend its uptrend above 1,900 mark?
The technology Nasdaq 100 futures contract follows a similar path, as it breaks above resistance level of 4,100. The nearest important support level is at 4,070-4,100, among others. On the other hand, potential resistance level is at 4,150-4,200, marked by some previous local highs. The market extends its short-term uptrend, as the 15-minute chart shows:
Concluding, the broad stock market continued its short-term uptrend yesterday, as it resumed trading following long holiday weekend. The S&P 500 index trades along its last year's August - September local lows, as they act as medium-term level of support. We continue to maintain our speculative long position (opened at 1,835 - Thursday's average opening price of S&P 500 index). We expect an upward correction or short-term downtrend's reversal. However, to protect our gain in a recently volatile market, we decided to move our stop-loss level up to 1,860 (marked by the above-mentioned yesterday's daily gap up support level). We also move our profit target up to 1,950 (S&P 500 index), just to let the gains grow if the market doesn't stop moving higher. 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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