Market preview – trading plan for June 6, 2016

Weekly outlook — S&P 500 CASH INDEX

The S&P 500 cash index ($SPX) closed at 2099.13 last Friday, up 7 cents for a tiny weekly gain

Last week: SP500 index spent lots of time grinding to the 2100 level last week. The inability to convincingly push above 2100 for closing led many investors to stay on the sidelines.

This week: The street will continue to search for hints about interest rate policy from Fed Chair Janet Yellen’s speech on Monday, in anticipation of next week’s June 14-15 meeting of the Fed Open Market Committee. The Index could continue going sideways until the Fed announcement next week – with the usual rumor-based dashes in one direction or the other. There may be a fake break-out this week if there is any hint from Yellen that rates will not be increased and/or that QE may resume.

Technical analysis

a) Long-term

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SPX June 3, 2016. Weekly bars.

The index continues to travel inside its long-term consolidation range (2112 to 1800) but near the top resistance of that range. It formed an indecision pattern –– a doji –– last week. This indicates the expansion move is close to turning the corner, either up or down.

The short-term has an overbought condition. In addition the price has now reached the overhead resistance area which has been very difficult to pass. It would be a good time for a pullback move south, perhaps around the 2040 area support.

The intermediate-term and long-term outlook remain bullish. But the index needs to find positive momentum to overcome that overhead resistance line in order to move to higher levels. It could come from external news or events but they could act in either direction, either to add fuel to the rally or to drive a retracement this week.

b) Short-term

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SPX June 3, 2016. Daily bars.

The SP500 index went sideways last week. It managed to hold the price above the daily momentum support zone 2075-60, but was unable to break the overhead resistance zone 2130-20. It ground back and forth around the psychologically important 2100 level without confirming a breakout.

The daily PMO indicator has given a buy signal, but volume didn’t support a move higher last week. This suggests the index may have some difficulties or issues to resolve before it can make a decisive break-out.

It may also indicate the start of the summer doldrums, when traders dream of beaches and golf courses and fewer pay attention to the markets; a dangerous time for snap moves.

This week the Fed Chair speaks on Monday and the ECB president speaks on Thursday. There may be some whipsaw moves connected to both events.

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

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