Negative Expectations Following Fed, But Will S&P500 Continue Lower?

June 15, 2017

Our intraday outlook is now bearish, and our short-term outlook is bearish. Our medium-term outlook remains neutral, following S&P 500 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 main U.S. stock market indexes were mixed between -0.4% and +0.2% on Wednesday, extending their short-term fluctuations following last Friday's technology stocks' sell-off, as investors reacted to economic data releases, including the FOMC Interest Rates Increase announcement. All the main stock market indexes have reached new all-time highs recently. The S&P 500 index trades just 0.3% below its new record high of 2,446.20. It has broken above week-long consolidation along 2,400 mark. Stocks have rebounded strongly after their mid-May quick two-session sell-off and continued over eight-year-long bull market off 2009 lows. The Dow Jones Industrial Average has reached yet another new record high at the level of 21,391.97 yesterday. The technology Nasdaq Composite index retraced some of its recent rebound, as it closed slightly below the level of 6,200. The nearest important resistance level of the S&P 500 index remains at around 2,440-2,450, marked by new record high, among others. On the other hand, support level is at around 2,415-2,420, marked by previous resistance level. The next support level is at 2,400-2,410, marked by the May 25 daily gap up of 2,405.58-2,408.01, among others. The support level is also at 2,390-2,395, marked by some short-term local lows. Will the uptrend continue towards 2,500 mark? There have been no confirmed negative signals so far. However, we can see some overbought conditions and negative technical divergences. The S&P 500 index is currently trading within a two-week-long consolidation, as we can see on the daily chart:

Sentiment Worsens Again

Expectations before the opening of today's trading session are negative, with index futures currently down 0.4-1.0% vs. their Wednesday's closing prices. The European stock market indexes have lost 1.0-1.1% so far. Investors will now wait for series economic data announcements: Initial Claims, Empire Manufacturing Index, Philadelphia Fed number at 8:30 a.m., Industrial Production, Capacity Utilization at 9:15 a.m., NAHB Housing Market Index at 10:00 a.m. The market expects that Initial Claims were at 240,000 last week, and Industrial Production was unchanged in May. The S&P 500 futures contract trades within an intraday downtrend following an overnight breakdown below its yesterday's trading range. It gets closer to last Friday's local low at around 2,415. The nearest important level of support is at 2,400-2,415, and the next support level is at 2,385-2,395, among others. On the other hand, resistance level is at 2,425-2,430, marked by previous level of support. The resistance level is also at 2,440-2,445, marked by last Friday's new all-time high. The market trades within a short-term consolidation, as it is still above the early March local high. However, we can see some short-term overbought conditions, along with negative technical divergences:

Another Tech Stocks Sell-Off?

The technology Nasdaq 100 futures contract follows a similar path, as it currently retraces most of its recent rebound off last Friday's local low. The nearest important level of resistance is at around 5,690-5,700, marked by previous support level. The next resistance level is at 5,730-5,750, marked by previous fluctuations. On the other hand, support level is at around 5,630-5,650, marked by local low. The next important level of support is at 5,600-5,620. There have been no confirmed positive signals so far:

Concluding, the S&P 500 index extended its short-term fluctuations on Wednesday, as it lost 0.1% following Tuesday's move up. It remains relatively close to last Friday's record high. Is this a topping pattern before some more meaningful downward reversal? Or just flat correction within medium-term uptrend? There have been no confirmed negative signals so far. However, we can see some negative technical divergences, along with medium-term overbought conditions.

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Paul Rejczak

Stock Trading Strategist

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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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