Stock Market New Downtrend Or Just Quick Downward Correction Before Another Leg Up?

By: Paul_Rejczak

Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,330, and profit target at 2,150, S&P 500 index).

Our intraday outlook remains 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 U.S. stock market indexes lost 0.3-0.8% on Wednesday, retracing some of their recent move up, as investors reacted to the FOMC Rate Decision announcement. The S&P 500 index remains relatively close to its record high of 2,277.53. The nearest important level of resistance is at around 2,275-2,280. The next resistance level is at 2,300 mark. On the other hand, support level is at 2,240-2,250, marked by previous level of resistance. The next important support level remains at 2,200-2,220. The market broke above its medium-term upward trend line recently, as we can see on the daily chart:

Expectations before the opening of today's trading session are slightly positive, with index futures currently up 0.1-0.2%. The main European stock market indexes have gained 0.2-0.6% so far. Investors will wait for series of economic data announcements: Consumer Price Index, Initial Claims, Philadelphia Fed, Empire Manufacturing number at 8:30 a.m., NAHB Housing Market Index at 10:00 a.m. The S&P 500 futures contract trades within an intraday consolidation, following yesterday's volatility. The nearest important resistance level is at around 2,270, marked by recent consolidation. On the other hand, support level remains at 2,250, among others.

The technology Nasdaq 100 futures contract follows a similar path, as it trades within an intraday consolidation following yesterday's move down. The nearest important resistance level is at around 4,950-4,960, marked by new record high. On the other hand, support level is at 4,900-4,920, marked by previous level of resistance, as the 15-minute chart shows:

Concluding, the broad stock market retraced some of its recent rally yesterday, following Fed Rate Decision release. For now, it looks like a downward correction within a short-term uptrend. However, we still can see technical overbought conditions. Therefore, we continue to maintain our speculative short position (opened yesterday at 2,268.35 - opening price of the S&P 500 index). Stop-loss level is at 2,330 and potential profit target is at 2,150 (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&P 500 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: 2,150; stop-loss level: 2,330
S&P 500 futures contract (December) - short position: profit target level: 2,150; stop-loss level: 2,330
SPY ETF (SPDR S&P 500, not leveraged) - short position: profit target level: $215; stop-loss level: $233
SDS ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $16.35; stop-loss level: $14.00 (calculated using trade's opening price on Dec 14 at $14.78).

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

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.

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