Short-Term Uncertainty Following Last Week’s Selloff: Will Downtrend Continue?

August 4, 2014

Briefly:  In our opinion, speculative short positions of the S&P500 Index are favored (with stop-loss at 1970 and a potential profit target at 1850).

Our intraday outlook is bearish, and our short-term outlook is bearish, following a breakout below recent consolidation:

Intraday (next 24 hours) outlook: bearish

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

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

Long-term outlook (next year): bullish

The U.S. stock market indexes lost 0.3-0.4% on Friday, extending their recent selloff, as investors reacted to some key economic data announcements - monthly jobs report, the ISM index, among others. Investors begin to expect rising interest rates, which is putting downward pressure on stock prices. The S&P500 index got closer to the level of 1,900, as it reached the daily low at 1916.37, which is the lowest since early June. The market remains in a short-term downtrend, following a breakout below upward trend line. The nearest important support level is at around 1900-1920. On the other hand, the level of resistance is at 1940-1950, marked by previous local lows. There have been no confirmed positive signals so far, as we can see on the daily chart:

Expectations before the opening of today’s session are positive, with index futures currently up 0.3%. The main European stock market indexes have been mixed between -0.2% and +0.3% so far. The S&P500 futures contract (CFD) is in an intraday consolidation, following last week’s decline. The nearest important level of support is at 1910-1915, and the nearest resistance level is at around 1930, marked by Friday’s local highs, as the 15-minute chart shows:

The technology Nasdaq 100 futures contract (CFD) is in a similar consolidation, following recent move down. The resistance level is at around 3900, and the level of support remains at around 3850. For now, it looks like a flat correction within a short-term downtrend:

Conclusion:  The broad stock market is in a short-term downtrend following last week’s breakout below two-month long upward trend line. In our opinion, speculative short positions with a stop-loss at 1970 and a potential profit target at 1850 (S&P500 index) seem justified at this moment.

Thank you.

Paul Rejczak

Stock Trading Strategist

Stock Trading Alerts

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All essays, research and information found above represent analyses and opinions of Paul Rejczak and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Paul Rejczak and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Mr. Rejczak is not a Registered Securities Advisor. By reading Paul Rejczak’s reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Paul Rejczak, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

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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