Market Preview- trading plan for Jan. 19, 2016

Weekly Outlook — S&P 500 Cash Index (SPX)

The S&P 500 cash index (SPX) closed at 1880.33 last Friday, down 41.70 points for a net weekly loss of 2.2%.

Last week: Markets around the whole world were falling last week. Political issues, oil prices tanking, bad earning reports, weak US economic data – all of it was making investors duck and cover.

This week: The January option week is behind us. The US market is closed on Monday. Last Friday’s quick and sharp reversal move in the afternoon could lead US equity market to have a further bounce in the early week trading.

Technical analysis

a)  Long-term

160115-SPX-weekly

SPX weekly chart

The index had a second declining week. The price already hit last year’s low and made a lower low during intraday trading. But the index quickly rebounded and managed to close above the 1880 line. So far the index has become extremely oversold in the short-term. We could see some bounce.

Based on the weekly chart, the index hit the low band of the 2015 sideways range. The PMO (price momentum oscillator) indicator is near the low area of 2011. This is an intermediate-term oversold situation, but not extreme. Nevertheless we could see some kind of ultra-short-term bounce movement for several days. This is another way to expect the index could hold up the 1859.50 line for a while.

long-term price table

Long-term price projects – SPX

Last week we mentioned our price model. In the past two weeks, the index did follow our predicted direction and reach our 1859.50 target. This level is the decision line for the bear market.

Often Bulls will come to defend it, and prevent the index from falling through to trigger a long-term bear market. The Index usually retraces, in this case perhaps up to 1948.50 or 1993, before the price resumes its downside path again.

b) Short-term

SPX- daily chart

SPX- daily chart

On Friday the SPX index hit the second major target (1859) our system predicted in last week’s preview  and had a sharp bounce for closing. That bounce resulted from profit taking. It shouldn’t change the short-term downside direction.

If the market is going to change its short-term direction it has to show strength from now until next month. If it does not, the price will likely resume its downside and go lower.

The PMO indicator is at the level at which the price hit 1860 last year. The index needs to move – to go up and down – to form a bottom and resolve the oversold condition.

1995-2000 is a major resistance zone on the daily chart, but the index has to deal with our 1948.50-55 resistance zone first. Staying under 1948.50-50 would indicate that the bearish outlook continues for the short term.

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

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160115-ES

ESH6 daily chart

ES hit into the support zone created at the low area of last year. Even thought ES closed above that support zone last Friday, the outlook is still bearish in the short-term.

Today ES could repeat last Friday’s range by going sideways if overnight trading holds ES under 1875 line and above 1850 line.

A move above 1885.50 line could trigger a computer-trading run up to 1895.50-97.50 or higher to 1913-15 zone to fill the gap at 1914.50 if the upside momentum is strong.

Conversely, a break below 1843.75 line will be bearish again; it is then for ES to retest 1830 (last year’s low) or lower to the 1817-21 range.

The US is in a bear market. We may see some bounce from last year’s low area due to the extremely oversold short-term condition. But the bounce shouldn’t change the major bearish downside direction. Things may get more ugly … as we expected.

Support and resistance

Major support levels: 1850-45, 1830-25
Major resistance levels: 1950-56, 1975-78, 1993.75-96.50

Outlook

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

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