Market preview and trading plan for the week of Sept. 6, 2016

Weekly outlook — S&P 500 CASH INDEX

The S&P 500 cash index ($SPX) closed at 2178.98 last Friday, up 10.94 points for a 0.5% net weekly gain.

Last week: There was not much change from the SP500 index. It rallied on Monday, and retraced for 3 days to wait for the NFP report, then bounced for closing with more than10 points gain after the report.

This week: It could be a choppy week due to expiration dates for index options (Sept 6, 7 and 9). This is also rollover week with the week’s trading compressed into four days. We could see increased price volatility. We expect that any rally will not last very long, but any dip could be bought again, especially in the last two days of this week.

Technical analysis

a) Long term

160902-SPX-weekly

SPX Sept. 2, 2016. Weekly chart.

Even thought the long-term and intermediate-term uptrend hasn’t been changed much, the overbought condition shouldn’t be ignored.

Now we are moving into the worst months of the year or equities (Sept and Oct), and market sentiment could turn bearish from one period into other, as fast as turning the pages of the calendar.

The PMO indicator has an intermediate-term overbought condition, but it didn’t give a selling sign last week. We are in a constrained time period: it is too late to go long, too early to go short.

If you are trading the long and intermediate term, use proper stops or options to control the risk.

b) Short-term

160902-SPX-daily

SPX Sept. 2, 2016. Daily chart.

The SPX had a strong run up on Monday, and then spent 3 days retracing to fill some of the air pockets it passed over on the way up. After the lackluster NFP report came out, the market rallied and recovered all the loss and gained 10 points for closing.

The short-term indicator (PMO) has been back down near the zero line. It gave no response to any price up or down bias. It is waiting for something to happen.

The Fed said it would like to raise interest rates soon, but the weak jobs data makes the market think the Fed won’t act in September. Recently the market is not responding to Fed jawboning, and is likely waiting for some clear indication about the election.

If that is the case, the sideways market is likely to continue for a time. The narrow August monthly range (2195 to 2150) could be repeated again.

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

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160902-ES-daily

ESU6 Sept. 2, 2016. Daily chart.

ES rebounded after US non-farm payrolls report on Friday. The data was 151K, below expectations of 185K. It is likely to knock a September rate hike off the table.

ES remains inside the two months consolidation range from 2191.50 to 2141.50. It acts like a bath bubble, bumping around the tub and going nowhere. Now summer vacation is over. After Labor day the volatility will increase.

Today the 2178.50 level is a key line. Staying above it could lead ES to retest August high area 2191.50-93.50 or higher up to 2200 to challenge the psychological resistance line.

If it fails to move above 2183.75 (last Friday’s high) the ES is likely to move back to Friday’s low area 2171.75 or lower 2164.50. We mainly should expect a repeat of last Friday’s range. Buying on the dip will continue to be seen as long as the 2150-45 zone holds up.

Support and resistance

Major support levels: 2155-56.50, 2146-43.50, 2133-28.50, 2103.50-00.75
Major resistance levels: 2188-89, 2196-93, 2103.50-06.50, 2214.50-12.50

Outlook

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