Market preview – trading plan for April 25, 2016

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

The S&P 500 cash index ($SPX) closed at 2091.58 last Friday, up 10.85 points for a net weekly gain of 0.52%.

Last week: SP500 index continued to rally until Wednesday when a pullback began. The weekly closing was positive, but the pullback move hasn’t ended yet.

This week: The market will continue to focus on the Fed Policy Announcement Wednesday and later on the re-balance for the end of the month. The index could manage to hold above 2050 and continue to challenge the 2100-10 resistance zone.

Technical analysis

a) Long-term

160422-SPX-weeky

SPX April 22, 2016. Weekly chart.

The long-term and intermediate-term outlook for the S&P500 index hasn’t changed very much since last week’s Market Preview. The trend remains up, and the weekly chart in particular still looks healthy.

The main problem is the possibility that a bull trap similar to last May is being set. That occurs when a bullish signal is given but fails to produce a further rally.

Right now the index is in short-term minor correction process. We are waiting for the short-term indicators to move away from the top of their ranges with a nice pullback, and then we will look for a longer term bullish breakout move again.

b) Short-term

160422-SPX-daily

SPX April 22, 2016. Daily chart.

SP500 index pulled back under the neckline resistance of the H&S pattern in the last two days. The minor pullback didn’t change the current uptrend direction, but it hasn’t finished yet.

We expect it should last 6-8 days, so far it has only run for two. The overhead resistance at 2100 and 2135 should still be in play until the end of April.

This week the Federal Reserve meeting begins on Tuesday and ends with a rate announcement on Wednesday. The index could go sideways at the beginning of the week to wait for the news, if any, from the Fed.

The major support for the short term has moved up to the 2025-2015 zone. If the index drops into this support zone before the Fed announcement, the price should be expected to bounce sharply from it.

But after the Fed announcement, the end-of-month re-balancing will dominate. The index could move up to close above the 2100 level if the Fed policy statement encourages the buyers. Alternatively it could drop back to close above the 2050 level at the last trading day of April if the Fed is not sufficiently helpful.

Short-term PMO is about ready to switch to a sell signal if the momentum turns negative again. 2070-65 will be the key zone to watch this week. A failure to hold that level could trigger a sell signal and push the price down further for short-term traders.

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

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