Market preview and trading plan – Feb. 16, 2016

Weekly outlook  — S&P 500 cash index (SPX)

The S&P 500 cash index ($SPX) closed at 1864.78 last Friday, down 15.27 points for a net weekly loss of 0.8% .

Last week: The index had an early sharp drop but reversed strongly on Friday. It tested last January’s low and managed to hold up, and gave a bullish signal for the following week.

This week: is a short week due to the US Presidents’ Day holiday.  It is also the major February option expiration week. The market sentiment favors a bounce.

Technical analysis

a) Long-term


SPX Weekly chart Feb. 12, 2016

The 200-week moving average line overlapped the lower boundary of the long-term range line last week and acted as strong support.

That helped the index stay above the 1800 level, and in the process negated – or delayed – the confirmation of the start of a long-term bear market. Now both short-term and intermediate-term indicators are getting very oversold, and we are likely to see an oversold bounce this week.

If the US dollar falls below the 93 level on the US Dollar Index it could trigger a further decline; in that case the money flows back into the equity market again.

1935.50 area is the 38% Fibonacci retracement from the low at 1802.50. This area is also a short-term resistance line. If/when the price gets to this line, we should watch how the price reacts with that resistance. We may see a further bounce if the short-term indicators still don’t have an overbought condition.

b) Short-term


SPX Daily chart. Feb. 12, 2016

The index has a bullish divergence between PMO indicator and price. This divergence signal is similar to the one shown at the August and September lows.

The higher lows in the PMO contrasted with lower lows made by the price resulted in an oversold bounce.

This bounce should be expected to meet the 20/40-day moving average lines first before we can assess the next move. If it turns into an intermediate-term bounce, the price should go higher than the 20/40-day moving average lines.

Daily outlook – S&P 500 mini-futures (ES)

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