Briefly: In our opinion, speculative short positions are favored (with stop-loss at 2,410, and profit target at 2,200, S&P 500 index).
Our intraday outlook is 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 were mixed between 0.0% and +0.2% on Friday, as they extended their short-term consolidation following Wednesday's rally after Donald Trump's address to Congress. The S&P 500 index remained relatively close to its new all-time high of 2,400.98. The Dow Jones Industrial Average continued to trade along 21,000 mark on Friday, and the technology Nasdaq Composite index remained close to the level of 5,900. All three major stock market indexes continue to trade close to their new record highs. The nearest important level of support of the S&P 500 index is at around 2,365-2,380, marked by Wednesday's daily gap up of 2,367.79-2,380.13. The next support level is at 2,350-2,355, marked by previous daily gap up of 2,351.16-2,354.91. The support level is also at around 2,320. On the other hand, the nearest important level of resistance is at 2,390-2,400, marked by all-time high. Will the market extend its year-long medium-term uptrend even further before some more meaningful downward correction? We can see some short-term volatility following almost four-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 Wednesday, and it looked like a blow-off top pattern accompanied by some buying frenzy. The S&P 500 index continues to trade above its medium-term upward trend line, as we can see on the daily chart:
Expectations before the opening of today's trading session are slightly negative, with index futures currently down 0.1-0.2%. The European stock market indexes have lost 0.3-0.4% so far. Investors will now wait for the Factory Orders number release at 10:00 a.m. The market expects that it grew 1.0% in January. The S&P 500 futures contract trades within an intraday uptrend, following an overnight move down. The nearest important level of resistance is at around 2,380-2,385, marked by some short-term local highs. On the other hand, support level is at 2,365-2,370, marked by local low and previous resistance level. The market slightly extended its short-term move down following last week's rally. Is this a new downtrend or just quick downward correction before another leg up?
The technology Nasdaq 100 futures contract follows a similar path, as it currently trades within an intraday uptrend after an overnight decline. It has retraced most of its Wednesday's rally to new record high at around 5,400. The nearest important support level is at around 5,340-5,350, marked by local lows and previous level of resistance, and the next level of support remains at 5,280-5,300. On the other hand, resistance level is at 5,380-5,400. The futures contract trades within a short-term consolidation, as the 15-minute chart shows:
Concluding, the broad stock market retraced some of its Wednesday's move up on Thursday and Friday, as the S&P 500 index bounced off resistance level at 2,400 mark. For now, it looks like a downward correction within an uptrend. But will the uptrend continue even further despite some clear short-term overbought conditions? Or is this a topping pattern before some more meaningful downward correction? There have been no confirmed negative signals so far. However, we still can see medium-term overbought conditions accompanied by negative technical divergences. Therefore, we continue to maintain our speculative short position (opened on Wednesday, 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 (NYSE:SPY) - 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: 2,200; stop-loss level: 2,410
S&P 500 futures contract (March) - short position: profit target level: 2,197; stop-loss level: 2,407
SPY ETF (SPDR S&P 500 (MX:SPY), not leveraged) - short position: profit target level: $220; stop-loss level: $241
ProShares UltraShort S&P500 (NYSE:SDS) ETF (ProShares UltraShort S&P500, leveraged: -2x) - long position: profit target level: $15.47; stop-loss level: $12.98