Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,510, and profit target at 2,300, 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 U.S. stock market indexes were mixed between -0.4% and +0.3% on Monday, extending their short-term fluctuations, as investors hesitated following last week's volatility. The S&P 500 index has reached new all-time high at the level of 2,484.04 on Thursday, before reversing lower. It continued to fluctuate on Monday, as it remained around 0.6% below its new record high. The Dow Jones Industrial Average reached new record high at the level of 21,929.8 yesterday, as it was still relatively stronger than the broad stock market. The technology Nasdaq Composite lost 0.4%, as investors took short-term profits off the table following last Thursday's rally. The nearest important support level of the S&P 500 index is at around 2,460-2,465, marked by July 19 daily gap up of 2,460.92-2,463.85. The next level of support is at 2,450-2,455, marked by June 19 local high. The support level is also at 2,430-2,435, marked by July 12 daily gap up of 2,429.30-2,435.75. On the other hand, level of resistance is at 2,480-2,485, marked by new all-time high. The next resistance level is at 2,500 mark. There have been no confirmed negative signals so far. However, we can see overbought conditions and negative technical divergences. The S&P 500 index broke above its over month-long consolidation, as we can see on the daily chart:

Positive Expectations

Expectations before the opening of today's trading session are positive, with index futures currently between +0.3% and +0.5% vs. their Monday's closing prices. The European stock market indexes have gained 0.5-0.7% so far. Investors will now wait for some economic data announcements: Personal Income, Personal Spending, PCE Prices number at 8:30 a.m., Construction Spending, ISM Index at 10:00 a.m. The market expects that Personal Income grew 0.4%, Personal Income grew 0.1% in June, and the ISM Index was at 56.4 in July. Investors will also wait for more quarterly corporate earnings releases. The S&P 500 futures contract trades within an intraday consolidation following an overnight advance. The market trades within an over-week-long consolidation along new record high, close to the level of 2,480. The nearest important resistance level is at around 2,480-2,500. On the other hand, support level is at 2,450-2,460, marked by some short-term local lows. The next support level remains at 2,440, among others. Will the market extend its uptrend? Or is this some topping pattern before downward reversal?

Which Direction Is Next?

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation after overnight move up. It remains more than 1% below Thursday's new record high. The market retraced some of its recent rally on Thursday, as it bounced off 6,000 mark. The nearest important level of resistance is at around 5,950-6,000. On the other hand, support level is at 5,850-5,870, marked by short-term local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index continued to fluctuate on Monday, as investors remained uncertain following recent volatility. Will uptrend continue? Or is this some topping pattern before downward reversal? There have been no confirmed negative signals so far. However, we still can see negative technical divergences, along with medium-term overbought conditions.

Therefore, we continue to maintain our speculative short position (opened at 2,437.83 on June 5 - opening price of the S&P 500 index). Stop-loss level is at 2,510 and potential profit target is at 2,300 (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: 2,300; stop-loss level: 2,510
S&P 500 futures contract (September) - short position: profit target level: 2,297; stop-loss level: 2,507
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $230; stop-loss level: $251
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: opening price: $12.56; profit target level: $13.98; stop-loss level: $11.82

Thank you.

Paul Rejczak
Stock Trading Strategist
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