Downward Reversal Or Just Correction Before Another Leg Up?

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 lost 0.2-0.6% on Wednesday, following relatively big move up, as investors reacted to the FOMC Minutes announcement. The S&P 500 index extended its short-term uptrend, before going closer to its recent local lows and support level of 2,350. The index remains around 2% below March 1 all-time high of 2,400.98. The Dow Jones Industrial Average closed below 20,700 mark, and technology Nasdaq Composite index reached new all-time high above the level of 5,900, before closing 0.6% lower. Is this a new uptrend or just upward correction within new medium-term downtrend? The nearest important level of support of the S&P 500 index is at around 2,350, marked by the above-mentioned recent local lows. The next support level is at 2,335-2,340, marked by local lows. The support level is also at 2,320, marked by February 13 daily gap up of 2,319.23-2,321.42 and last week's Monday's local low. 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&P 500 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 slightly positive, with index futures currently up 0.1%. The European stock market indexes have been mixed so far. Investors will now wait for the Initial Claims number release at 8:30 a.m. The market expects that the Initial Claims were 251,000 last week. The S&P 500 futures contract trades within an intraday consolidation, following yesterday's move down. The nearest important level of resistance is at around 2,350-2,355, marked by previous level of support. The next resistance level is at 2,370-2,375, marked by yesterday's local highs. The resistance level is also at 2,380-2,400, marked by topping consolidation along record high. On the other hand, support level is now at around 2,335-2,340, marked by short-term local low. The next support level is at 2,300-2,320, marked by some late March local lows. The market continues to trade within a short-term consolidation, following last week's move up. Is this a 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 yesterday. 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 uptrend yesterday, before quickly reversing to the downside following FOMC Minutes report release. Will it continue lower or just extend five-week-long fluctuations? 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&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 (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