Briefly:

Intraday trade: The S&P 500 index may retrace some of its yesterday's move up today. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions. Therefore, intraday short position is favored. Stop-loss is at the level of 2,465 or 10 points above yesterday's daily high. Potential profit target is at 2,435 or 18 points below yesterday's closing price (S&P 500 index).

Medium-term trade: In our opinion, short position is favored (opened on June 5 at 2,437.83, 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, as we expect downward correction. Our medium-term outlook remains bearish:Intraday outlook (next 24 hours): bearish
Short-term outlook (next 1-2 weeks): bearish
Medium-term outlook (next 1-3 months): bearish

The U.S. stock market indexes gained between 0.9% and 1.4% on Tuesday, retracing most of their recent decline, as investors' sentiment improved following Donald Trump's speech, economic data releases, among others. The S&P 500 index bounced off support level at around 2,420, marked by Monday's local low. It currently trades just 1.5% below the August 8 all-time high of 2,490.87. The Dow Jones Industrial Average got back to the level of 21,900 again, and the technology Nasdaq Composite is at 6,300 mark, around 2.5% below its record high of 6,460.84. The nearest important level of resistance of the S&P 500 index is now at 2,465-2,475, marked by previous support level and local highs. The next resistance level is at 2,490-2,500, marked by the above-mentioned all-time high. On the other hand, support level is at 2.430-2,435, marked by yesterday's daily gap up of 2,430.58-2,433.67. The next support level remains at 2,400-2,420. The market retraced some of its recent downtrend yesterday. Is this a new uptrend or just upward correction? There have been no confirmed positive signals so far. We still can see some negative technical divergences. But will they lead to medium-term downward correction? The S&P 500 index trades within a medium-term consolidation following early June breakout above 2,400 mark, as we can see on the daily chart:

Will Uptrend Continue?

Expectations before the opening of today's trading session are negative, with index futures currently down 0.2% vs. their Tuesday's closing prices. The European stock market indexes have been mixed so far. Investors will now wait for some economic data announcements: New Home Sales number at 10:00 a.m., Crude Oil Inventories at 10:30 a.m. The market expects that the New Home Sales number was at 611,000 in July. The S&P 500 futures contract trades within an intraday downtrend following yesterday's rally. The nearest important level of resistance is at around 2,450-2,455, marked by short-term local highs. The next resistance level is at around 2,460, marked by previous consolidation. On the other hand, support level is at 2,430-2,440, marked by previous level of resistance. Will the market extend its Tuesday's rally? Or was this just some quick bounce following recent move down?

Nasdaq Relatively Stronger

The technology Nasdaq 100 futures contract follows a similar path, as it trades within a slight intraday downtrend. It retraces some of yesterday's advance. The nearest important level of resistance is at around 5,880-5,600. On the other hand, support level is at 5,800-5,850. The Nasdaq futures contract has retraced most of its last week's Thursday's sell-off. But will it continue higher?

Concluding, the S&P 500 index retraced most of its recent move down yesterday, following a bounce off support level. Will the market resume its long-term uptrend? Or is this just another move up within medium-term consolidation? There have been no confirmed positive signals so far. We still can see some medium-term overbought conditions along with negative technical divergences.

Therefore, we continue to maintain our medium-term 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). One 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: medium-term 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:

Intraday trade:

S&P 500 index - short position: profit target level: 2,435; stop-loss level: 2,465
S&P 500 futures contract (September) - short position: profit target level: 2,432; stop-loss level: 2,462
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $243.5; stop-loss level: $246.5

Medium-term trade:

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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