Market preview and trading plan for Feb. 29, 2016

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

The S&P 500 cash index ($SPX) closed at 1948.05 last Friday, up 30.27 points for a net weekly gain of 1.57%.

Last week: The index had a further bounce and got through the high set earlier in the month. It closed above 50-day moving average line on Friday. The moving average line suggests that the short-term trend is still positive.

This week: it is the week hat marks the end and beginning of the month. Monday’s closing price will determine the short-term trend move, and for the rest of the week day the index could go in either direction to test either last week’s high or last week’s low.

Technical analysis

a) Long-term

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SPX Feb. 26, 2016. Daily chart.

The Index is still below the 200-week moving average line, but it is holding above the 50-week moving average.

The PMO indicator (weekly) has a little convergence, a sign that the fast line may be going to turn up.

That may be negated if the index goes down further, but it will give the buyers hope that the price could be held up briefly.

Based on the monthly chart (click here to view), the index broke the four-year uptrend line and now holds above the seven-year uptrend.

The 50-month moving average line overlaps the seven-year uptrend line and acts as solid support at the current stage. It could take a little longer time to break this support.

The PMO monthly indicator still gives a selling signal and continues moving down. This indicates the index is in a bearish market top.

b) Short-term

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SPX Feb. 26, 2016. Daily chart.

The index moved above the 50-day ema line in the last two day’s trading and managed to close above it. The moving average line suggests the current trend is still positive. But last Friday’s selling gave a reversal sign. It could result from the weekly option expiration and traders anticipating the Feb. 29 monthly option expiration.

The PMO indicator continued going higher last week; it didn’t give any selling signal. This indicates that the short-term correction bounce may not be ended yet.

But the key line 1950 will be an important price point for Monday’s close. Closing below it will convince us that the major short-term downtrend is still intact. The direction after that will likely reflect Monday’s close, either up to retest last week’s high or continue below Monday’s low for the rest of the week.

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

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ESH6 Feb, 26, 2016. Daily chrt.

ES had a gap up at the open, but buying strength quickly disappeared; instead profit taking sent the price back down below the 1950 level, and it closed slightly above the neckline of the double bottom last Friday. It could result from the end-of-month re balancing.

Today is the last day of February, and also the end of month option expiration day. ES could go lower to 1920-10 if overnight trading can’t move above the 1950 level. The monthly closing price could be below the 1950-40 zone.

Short-term indicators are overbought. This, in conjunction with the candle reversal on Friday could lead today’s market into a further decline in the early sessions.

A move below 1945 may push the ES down towards 1930-28.50 or lower near the 1923.50-21.50 zone (long area). A break above 1953.75 could push price above 1957-60.50 or higher up to 1966.50-69.50 to retest yesterday’s high (short entry)

Support and resistance

Major support levels: 1923.50-21, 1907.50-03.75, 1893-92, 1881-75, 1833-31
Major resistance levels: 1950-56, 1964.75-69, 1975.50-79, 1990.50-93.75

Outlook

Short-term —- Bearish
Medium term —-Neutral
Long term —- Neutral

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