Still No Clear Short-Term Direction - Will Uptrend Continue?

April 10, 2017

In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P500 index).

Our intraday outlook is bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P500 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 US stock market indexes were virtually flat on Friday, as they lost 0.02-0.08%, following worse-than-expected monthly jobs report release. The S&P500 index continued to fluctuate within its two-week-long short-term consolidation along the level of 2,350. The index remained around 2% below March 1 all-time high of 2,400.98. Is this a new downtrend or just relatively shallow downward correction before another medium-term leg up? The Dow Jones Industrial Average closed below 20,700 mark again, and technology Nasdaq Composite index remained below 5,900, following its last week's Wednesday's move to new record high. The nearest important level of support of the S&P500 index is at around 2,350, marked by local lows. The next support level is at 2,335-2,340, marked by some previous local lows. The support level is also at 2,320, marked by February 13 daily gap up of 2,319.23-2,321.42, among others. On the other hand, the nearest important level of resistance is now at 2,370, marked by short-term local highs. The next resistance level is at 2,380-2,400, marked by all-time high, among others. We can see some short-term volatility following five-month-long rally off last year's November low at around 2,100. Is this a topping pattern before downward reversal? The uptrend accelerated on March 1 and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P500 index continues to trade along its medium-term upward trend line, as we can see on the daily chart:

Expectations before the opening of today's trading session are virtually flat, with index futures currently between -0.01% and +0.01%. The European stock market indexes have lost 0.2-0.6% so far. The S&P 500 futures contract trades within an intraday downtrend, as it retraces some of its Friday's rebound off support level at 2,345-2,350. The next important level of support is at around 2,335-2,340, marked by recent local low. On the other hand, the nearest important level of resistance is at 2,360, marked by late last week's local highs. The next resistance level is at 2,370-2,375, marked by last week's local high. The resistance level is also at around 2,400, marked by the early March record high. The market continues to trade within a short-term consolidation. Is this some medium-term topping pattern or just flat correction before another leg higher?

The technology Nasdaq 100 futures contract remains relatively stronger than the broad stock market, as it continues to trade above the level of 5,400. It has reached new all-time high above the level of 5,480 on last Wednesday. The nearest important level of resistance is at around 5,440-5,450, and the next resistance level is at 5,480-5,500. On the other hand, support level is at 5,380-5,400, marked by short-term local lows, as the 15-minute chart shows:

Concluding, the S&P 500 index extended its short-term consolidation on Friday, following the important monthly jobs report release. The market continues to fluctuate following late March rebound off support level. Is this a new uptrend or just upward correction within a downtrend off March 1 all-time high? The broad stock market remains close to its five-month-long medium-term upward trend line. There have been no confirmed short-term positive signals so far. However, we still can see medium-term overbought conditions along with negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on February 15 at 2,335.58 - opening price of the S&P 500 index). Stop-loss level is at 2,410 and potential profit target is at 2,200 (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&P500 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: 2,200; stop-loss level: 2,410

S&P 500 futures contract (June) - short position: profit target level: 2,197; stop-loss level: 2,407

SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $220; stop-loss level: $241

SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98.

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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