Market preview and trading plan for Monday December 12, 2016

Summary — S&P 500 CASH INDEX

The S&P 500 cash index ($SPX) closed at 2259.53 last Friday, up 67.58 points for 3.08 % net weekly gain.

Last week: the SP500 index broke its November’s high on Wednesday and kept rallying into Friday for a higher level closing. The bull market continues in the long-term.

This week: The quadruple witch expiration week and FOMC policy announcement will all be in this week. The index could have a big swing move. The Index may give us a reversal signal this week while short-term indicator gets extremely overbought.

Technical analysis

a) long and intermediate time frame

SPX to Dec. 9, 2016. Weekly chart with Elliot Wave counts.

The SP500 index gave an intermediate-term BUY signal last week. The monthly range momentum breakout was strong and supported by a broad range of NYSE stocks.

We haven’t explained the Elliot wave count for quite a long time, and a fresh analysis is overdue.

The SP500 index is in impulse wave 5 from the long-term monthly move right now. This long-term uptrend started in 2009 and continues to rally, which is one of the reasons we have been calling the long time frame bullish for the past several years.

However the rally is in the last wave movement, and now we have to pay attention to the Elliot wave count.

The market could continue rallying for about 10 to 25 per cent more, but it could also end next year. For the long-term analysis we are waiting for an reversal signal to show us the direction.

The wave 5 process for the long-term (monthly chart) gives us a first destination around 2279.29 or higher at 2320.09. The maximum upside target could be the same length as the first impulse wave, which would be around the 2515 area. The minimum upside target could be 2320-2338 zone, which is not far from the current price.

In the sub-wave, which we use for intermediate-term (weekly) analysis, it looks like the index is in the first impulse upside wave of long wave 5 (see chart). This first intermediate-term wave hasn’t completed yet. It could be heading toward 2279-85 area or higher.

In addition to the Elliot wave analysis, the intermediate-term PMO indicator just gave out a buy signal, and it is not overbought at this time. That suggests any short-term correction or pullback will be bought by new buyers.

Until the PMO indicator reaches the top overbought area, we would expect the current rising trend to continue.

b) Short-term

SPX to Dec. 9, 2016. Daily chart.

The S&P500 index had a super rally last week. It broke the November high and had a monthly range breakout momentum movement. Price closed at a new all-time high and the price action was bullish, and well supported by a broad rally in blue chip stocks. It looks like any money that was sitting on the sidelines came rushing back in.

This week the November high – which is now the broken resistance line at 2213.23 – will be a major support for this week. Holding above it could maintain the ultra-short-term bullish uptrend.

Right now a rising wedge pattern is forming in the ultra-short-term uptrend which suggests the index may pull back briefly. The bottom of the uptrend channel could be retested, but is likely to be held up this week.

Daily outlook – S&P 500 MINI FUTURES (ES)

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ESH17 to Dec. 9, 2016. Daily chart.

ES had its fifth day rally and closed at the highest level in history. The price action was bullish. But the volume was lighter than average, which could be due to the contract rollover.

Today 2255.50-56.50 will be a key zone. A failure to move above it could lead ES to repeat Friday’s range move first before it takes the next price direction move.

The Daily PMO indicator resumes its rally, approaching overbought territory, while the slow STO indicator remains overbought, but not extremely so.

Both indicate that while the ES has its ultra-short-term overbought condition and a minor pullback is likely, it will not harm the uptrend.

The low of the uptrend channel and November’s high at 2213.75-11.75 will be the major support for today. Buy on the dip will be a common strategy.

Support and resistance

Major support levels: 2193.50-95.50, 2183-81, 2172-74, 2165-62.50
Major resistance levels: 2268-72.50, 2279-83.50, 2288.50-93.50, 2300.50-05.50

Outlook

Short-term —- Bullish
Medium term —–Bullish
Long term —- Bullish

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