Market preview and trading plan for Feb. 8, 2016

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

The S&P 500 cash index ($SPX) closed at 1880.05 last Friday, down 26.85 points for net weekly loss of 1.40%.

Last week: The index gave up 100% of the prior week’s gain and closed near the low of the trading range on Friday. It gave a bearish outlook again

This week: Ms. Yellen will capture most of the attention from the Street. Her speeches Wednesday and Thursday may encourage buyers to stay on course, but also could disappoint them and trigger heavy selling. Overall, if there is a rally will not last very long.

Technical analysis

a) Long-term

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SPX Feb. 5, 2016. Weekly chart.

The long-term bullish outlook is deteriorating. The recent bounce wasn’t strong enough to carry the price back up to last September’s high. This behavior will continue to discourage buyers.

This week, S&P500 index may give confirmation that the bear market has started. A close below 1800 on weekly basis will confirm that for long-term traders .

There are several things which should attract our attention

  1. The US dollar rises, the equity market falls. This should be considered normal value adjustment behavior.
  2. The oil decline resulted from the undeclared currency war which has been going on for a long time now. This is looking similar to the 2009 financial crisis, but the effects will be felt far beyond the energy sector. In particular we need to watch the banking sector for banks with heavy exposure to energy producers..
  3. Each central bank acts in its own interest, the era of CB co-ordination may be coming to an end, and the Fed may lose its control. This time it may be difficult – or impossible – to get agreement on what to do next. Discord is likely to make global markets (including the US) fall harder.

For the long-term, as long as the index can’t close above the 1950 level the price should gradually move lower. We still expect the 1585-75 zone to be tested in the long run.

b) Short-term

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SPX Daily chart

The index resumed its downside movement after it tested the 20-day moving average for a few days.

The unfilled gap at 1868.99 helped to hold the index up last week and the gap now becomes a key level for this week. A break below it could send index back down to the February low area for testing again.

The PMO indicator (price momentum oscillator) is turning down. It could bring more selling if the fast line crosses down the slow line.

The 20-day moving average line will continue as an ultra-short-term resistance line for this week. 1965-55 zone is also a major resistance line for the short term.

As long as the index stays under those two resistance areas the short-term trend remains down, and the price should decline further to make new lows.

Daily outlook  – S&P 500 Mini futures (ES)

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