More Volatility Following Fed's Decision Release…Uptrend Reversal Or Just Consolidation?

March 17, 2016

In our opinion, speculative short positions are favored (with stop-loss at 2,050, and profit target at 1,900, S&P 500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish, as we expect a downward correction or short-term uptrend's reversal at some point. Our medium-term outlook remains bearish, as the S&P 500 index extends its lower highs, lower lows sequence. We decided to change our long-term outlook to neutral recently, following a move down below medium-term lows:

Intraday outlook (next 24 hours): bearish

Short-term outlook (next 1-2 weeks): bearish

Medium-term outlook (next 1-3 months): bearish

Long-term outlook (next year): neutral

The main U.S. stock market indexes gained between 0.4% an 0.9% on Wednesday, extending their short-term uptrend, as investors reacted to the FOMC's Interest Rates announcement. The S&P 500 index got closer to its resistance level of 2,040, marked by the early January daily gap down of 2,038.20-2,043.62. The next important level of resistance is at around 2,080, marked by the late December local high of 2,081.56. On the other hand, support level remains at 2,000 mark, and the next support level is at 1,960-1,980, marked by previous level of resistance. There have been no confirmed negative signals so far. However, we can see some technical overbought conditions. Is this a new uptrend leading to last year's all-time high or just an upward correction following January sell-off? For now, it looks like a move up within a medium-term descending trading channel:

Expectations before the opening of today's trading session are negative, with index futures currently down 0.3-0.4%. The European stock market indexes have lost 0.4-1.9% so far. Investors will now wait for some economic data announcements: Initial Claims, Philadelphia Fed at 8:30 a.m., Leading Indicators number at 10:30 a.m. The S&P 500 futures contract trades within an intraday downtrend, as it retraces its yesterday's move up following the FOMC's Rate Decision release. The nearest important level of resistance is at around 2,020-2,025, marked by local highs. On the other hand, support level is at 1,995-2,000. There have been no confirmed negative signals so far. However, we can see some technical overbought conditions:

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday downtrend. It retraces its yesterday's advance. The nearest important level of resistance is at around 4,400, marked by short-term local highs. On the other hand, support level remains at 4,330-4,350. We can see an increased volatility that may lead to a trend reversal:

Concluding, the broad stock market continued its short-term uptrend on Wednesday, as investors reacted to the FOMC's Rate Decision release. The S&P 500 index got closer to its resistance level of 2,040. Will it continue higher despite some technical overbought conditions? There have been no confirmed short-term negative signals so far. However, we continue to maintain our speculative short position (opened on March 7th at 1,995, S&P 500 index). We expect a downward correction or uptrend reversal at some point. Stop-loss level is at 2,050, marked by the above-mentioned daily gap down resistance level, and potential profit target is at 1,900 (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.

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Courtesy of SunshineProfits.com

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.

Dollar falls on uncertainty but ends week with modest gain