Short-Term Uncertainty As Stocks Extend Their Two-Month Long Consolidation

June 23, 2016

In our opinion, speculative short positions are favored (with stop-loss at 2,120 and profit target at 2,000 on S&P500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook remains bearish, as the S&P 500 index extends its lower highs, lower lows sequence:

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 US stock market indexes lost 0.2-0.3% on Wednesday, extending their short-term fluctuations, as investors awaited today's British European Referendum Polls release, among others. The S&P 500 index continues to trade within two-month long consolidation. The nearest important resistance level is at around 2,100 mark, and the next level of resistance remains at around 2,110-2,120, marked by local highs. On the other hand, support level is at 2,080-2,085, marked by recent consolidation. The next support level is at around 2,050-2,060. Last year's highs along the level of 2,100 continue to act as medium-term resistance level. Will the market break above these medium-term highs and continue its seven-year long bull market? Or will it reverse over three-month long uptrend off medium-term support level at around 1,800?

Expectations before the opening of today's trading session are very positive, with index futures currently up 0.9-1.0%. The European stock market indexes have gained 1.4-2.3% so far. Investors will now wait for some economic data announcements: Initial Claims at 8:30am, New Home Sales at 10:00am. The S&P500 futures contract trades within an intraday uptrend, as it gets closer to resistance level of 2,100. The next resistance level is at 2,110-2,120. On the other hand, support level remains at around 2,085-2,090, marked by previous level of resistance. The next important support level is at 2,075-2,080, as we can see on the 15-minute chart:

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday uptrend. The market broke above its yesterday's local high, and it currently trades close to resistance level of 4,450. On the other hand, support level remains at 4,390-4,400, as the 15-minute chart shows:

Concluding, the broad stock market extended its short-term consolidation yesterday, as investors awaited today's British European Referendum, economic data releases. There have been no confirmed negative signals so far. However, we continue to maintain our speculative short position (opened on June 1 at 2,093.94 - S&P 500 index), as we expect a downward correction or uptrend reversal. Our stop-loss level remains at 2,120, and profit target is at 2,000 (S&P500 index). You can trade S&P500 index using futures contracts (S&P500 futures contract - SP, E-mini S&P500 futures contract - ES) or an ETF like the SPDR S&P500 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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