Stock Trading Alert originally sent to subscribers on February 13, 2017, 6:56 AM.

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).

Our intraday outlook remains 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 gained between 0.3% and 0.5% on Friday, extending their short-term uptrend, as investors’ sentiment remained bullish following quarterly earnings, tax cut plan, economic data releases, among others. The S&P 500 index has reached new all-time high at the level of 2,319.23. The Dow Jones Industrial Average continues to trade above support level of 20,000, and the technology Nasdaq Composite Index is now above the level of 5,700. All three major indexes trade at new record highs. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? The nearest important level of support of the S&P 500 index is at 2,300-2,310, marked by previous level of resistance and Friday’s daily gap up of 2,311.08-2,311.10. The next support level is at around 2,285-2,290, marked by last week’s Friday’s daily gap up of 2,283.97-2,287.88. We can see some short-term volatility following November – January move up. Is this a topping pattern before downward reversal? The S&P 500 index still trades along 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 up 0.1-0.2%. The European stock market indexes have gained 0.1-0.9% so far. Investors will wait for more quarterly corporate earnings releases, tomorrow’s and Wednesday’s inflation data, Retail Sales, Industrial Production releases, among others. The S&P 500 futures contract trades within an intraday consolidation following last week’s move up. The nearest important level of support is at around 2,300, marked by previous level of resistance. The next support level remains at 2,280-2,285. On the other hand, resistance level is at 2,315-2,320, marked by new record high. There have been no confirmed negative signals so far. However, we can see some short-term overbought conditions, along with negative technical divergences. Is this a topping pattern or just an intraday consolidation before another leg up?

The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday consolidation after last week’s rally. It has reached new all-time high above the level of 5,235. The technology sector stocks have been relatively stronger than the broad stock market recently following better-than-expected quarterly earnings releases. The nearest important support level is at 5,200, marked by previous level of resistance, and the next support level is at around 5,180, among others. The market trades along new all-time highs, as the 15-minute chart shows:

Concluding, the broad stock market continued its short-term uptrend on Friday, as the S&P 500 index reached new record high close to the level of 2,320. Will the uptrend extend even further? Or is this some topping pattern before a downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on December 14 at 2,268.35 – daily opening price of the S&P 500 index). Stop-loss level remains close to current market price, at 2,330 and potential profit target is at 2,150 (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: 2,150; stop-loss level: 2,330
S&P 500 futures contract (March 2017) – short position: profit target level: 2,145; stop-loss level: 2,325
SPY ETF (SPDR S&P 500, not leveraged) – short position: profit target level: $214.5; stop-loss level: $232.5 (updated)
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) – long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade’s opening price on Dec 14 at $14.78).

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts