Stocks Bounced Off Sharply Following Recent Move Down - Downtrend Reversal Or Just Correction?

By: Paul_Rejczak

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 1,985 and profit target at 1,900, S&P 500 index)

Our intraday outlook is bearish, and our short-term outlook is bearish:

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 main U.S. stock market indexes gained between 1.0% and 1.2% on Friday, retracing some of their recent losses, as investors hoped for the end of a downward correction. The S&P 500 index continued to move up, following Thursday's bounce off the support level at around 1,920-1,930, marked by early August consolidation. The nearest important level of resistance is at around 1,965-1,970, marked by previous local lows. The next resistance level is at 1,985. For now, it looks like an upward correction within a short-term downtrend, as we can see on the daily chart:

Expectations before the opening of today's session are slightly positive, with index futures currently up 0.3%. The European stock market indexes have gained 0.2-0.9 so far. The S&P 500 futures contract (CFD) is in a relatively narrow trading range, as it moves along last week's consolidation. The nearest important resistance level is at around 1,975, as the 15-minute chart shows:

The technology Nasdaq 100 futures contract (CFD) is close to the resistance level of 4,030, marked by some recent local extremes. For now, it looks like a correction within a downtrend. The nearest important level of support remains at around 4,000:

Concluding, the broad stock market bounced off sharply, following its recent losses. However, there have been no confirmed downtrend reversal signals. We remain bearish, expecting some more downside. We continue to maintain our already profitable speculative short position with entry point at 2,000.5 - S&P 500 index. The stop-loss is at the level of 1,985. Potential profit target remains at 1,900 (S&P 500 index). 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.

Thank you.

Paul Rejczak
Stock Trading Strategist
Stock Trading Alerts
SunshineProfits.com

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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Disclaimer

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