More Uncertainty Following Last Month's Move Up - Which Direction Is Next?

June 4, 2015

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,140, and profit target at 1,980, S&P500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish:

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): bullish

The main U.S. stock market indexes gained 0.2-0.4% on Wednesday, as investors reacted to some economic data announcements, among others. The S&P 500 index remains relatively close to its May 20 all-time high of 2,134.72. The nearest important level of resistance is at around 2,130-2,135. On the other hand, support level is at 2,100. There have been no confirmed negative signals so far. However, we can see negative technical divergences:

Expectations before the opening of today's trading session are negative, with index futures currently down 0.6-0.8%. The European stock market indexes have lost 1.4-1.9% so far. Investors will now wait for economic data announcements: Challenger Job Cuts report at 7:30 a.m., Initial Claims, Productivity at 8:30 a.m. The S&P 500 futures contract (CFD) is in an intraday downtrend, as it trades close to the level of 2,100. The nearest important level of support is at 2,090-2,100, marked by recent local lows. On the other hand, resistance level is at 2,120, among others, as the 15-minute chart shows:

The technology Nasdaq 100 futures contract (CFD) broke below the level of 4,500. The nearest important level of support is at around 4,480, marked by previous local lows. On the other hand, resistance level is at 4,530-4,550, as we can see on the 15-minute chart:

Concluding, the broad stock market extended its short-term consolidation on Wednesday, as the S&P 500 index got closer to its late May all-time high again. There have been no confirmed negative signals so far. However, we continue to maintain our speculative short position (2,098.27, S&P 500 index), as we expect a downward correction or an uptrend reversal. Stop-loss is at 2,140, and potential profit target is at 1,980. 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.

Paul Rejczak is a stock market strategist, who has been known for quality of his technical and fundamental analysis since the late nineties. He is interested in forecasting market behavior based on both traditional and innovative methods of technical analysis. Paul has made his name by developing mechanical trading systems. Paul is the author of Sunshine Profits’ premium service for stock traders: Stock Trading Alerts.

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