Market preview – trading plan for May 16, 2016

Weekly outlook  —  S&P 500 CASH INDEX

The S&P 500 cash index ($SPX) closed at 2057.14 Friday, down 10.53 points for a net weekly loss of 0.5%.

Last week: SP500 index went sideways and repeated its prior week’s range. But it did close lower than the previous week and gave a bearish impression; it does not look like the short-term correction has ended yet.

This week: The expiration of the major monthly option this week will cause the index to have a choppy and unexpected move. We have the VIX option expiration on Tuesday, the two SPX index options on Wednesday and Thursday, and the ES option on Friday. All of them will be influenced by external news and their own popular strike prices.

Technical analysis

a) Long-term

160513-SPX-weekly

SPX May 13, 2016. Weekly chart

After the S&P500 index reached its high at 2111.05, the price made a minor short-term pullback. So far there is no sign the market is turning around. Instead the intermediate-term PMO slows down its rate of increase and stalls at its neutral area.

 

The 20-week ema hasn’t crossed below the 40-week ema yet, but it failed to give a sign of a strengthening price rally. Mainly the 20/40ema lines both pulled the price down toward them, which weakened the price action on the upside move. It suggests the index could continue going down even if there is a bounce in short-term.

b)Short-term

150513-SPX-daily

SPX May 13, 2016. Daily chart

A potential H&S pattern continues to form in the SP500 index. The 2089.50 high could be the top of the right shoulder. The neckline could be in the 2035 -25 zone, slightly above the 200-day moving average line.

 

Short-term PMO indicator is still decelerating, while the OBV indicator declines. A break below the 200-day moving average line, could trigger an intermediate-term correction and push the index down near 2000-1975 zone for testing.
But due to the major option expiration activity, we may see the index attempt to hold above the 2025 level.

A move above 2093.50 level will breach the bearish H&S pattern and trigger a run on buy orders above it, possibly sending the price up to the 2100 level.

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

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