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 lost between 0.8% and 1.4% on Thursday, retracing Wednesday's move up, as investors' sentiment worsened again. The S&P 500 index fell the lowest since end of May, as it got closer to support level of 2,400. It is now trading 1.4% below its June 19 all-time high of 2,453.82. It has reached new record high after a breakout above short-term consolidation along the level of 2,420-2,440. Stocks have rebounded sharply following their mid-May quick two-session sell-off and continued over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average was relatively stronger yesterday, as it fell slightly below 21,300 mark. The technology Nasdaq Composite was relatively weaker than the broad stock market, as it lost 1.4% and retraced its Wednesday's rebound. The nearest important support level of the S&P 500 index is at around 2,415-2,420, marked by some recent local lows. The next support level is at 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. On the other hand, level of resistance is at 2,425-2,430, marked by some recent fluctuations. The next resistance level remains at 2,450-2,455, marked by all-time high. There have been no confirmed negative signals so far. However, we can see overbought conditions and negative technical divergences. The S&P 500 index is trading within its three-week-long consolidation, as we can see on the daily chart:

Reversal Or Just Bounce?

Expectations before the opening of today's trading session are positive, with index futures currently up 0.2-0.4% vs. their Thursday's closing prices. The European stock market indexes have gained 0.3-0.7% so far. Investors will now wait for some economic data announcements: Personal Spending, Personal Income, PCE Prices number at 8:30 a.m., Chicago PMI at 9:45 a.m., Michigan Sentiment at 10:00 a.m. The market expects that Personal Spending grew 0.1% and Personal Income grew 0.3% in May, Chicago PMI was at 57.8, and Michigan Sentiment was at 94.7 in June. The S&P 500 futures contract trades within an intraday uptrend, as it retraces some of yesterday's decline. The nearest important level of resistance is at around 2,435-2,440, marked by local highs. The next resistance level is at 2,445-2,450, marked by record high. On the other hand, support level is at 2,420, marked by an intraday's consolidation, and the next support level is at 2,400-2,410, marked by yesterday's local low. Will downtrend continue? Or is this some bottoming pattern before an upward reversal?

Techs Weak Again

The technology Nasdaq 100 futures contract follows a similar path, as it retraces some of yesterday's move down. The market continues to fluctuate after June 9 sell-off. The nearest important level of resistance is at around 5,700, and the next resistance level is at 5,750-5,750, marked by yesterday's local highs. On the other hand, support level is at around 5,600, marked by local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term downtrend yesterday, as it got closer to the level of 2,400. Will it continue lower? Or is this still just downward correction within medium-term uptrend? There have been no confirmed negative signals so far. However, we still can see negative technical divergences, along with some 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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