Market preview – trading plan for Nov. 9, 1015

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

The S&P 500 cash index closed at 2099.20 on Friday, up 19.84 points for 0.95% net weekly gain.

Last week: The SPX has now rallied for six weeks straight. It closed Friday just below the psychologically important 2100 line. There was some small profit-taking after the Non-Farm Payroll report was released, but overall market sentiment was still bullish and the uptrend is intact.

This week: There could be some continuing consolidation this week. The index may move sideways and repeat last week’s range. But external events will influence the short-term price moves and could result in a quick pop or a quick dip. Traders should prepare to react quickly.

Technical analysis

a) Long-term

SPX weekly chart

SPX weekly chart

The index paused below the May high and closed just below the 2100 level for the first time since the beginning of August. The index has had a strong six-week rally and has fully recovered this year’s loss. Now it is getting close to the 2120 level that was the ceiling for most of the year. So will it move on to new highs, or begin a retracement? The actions of the Federal Reserve in the next few weeks will probably determine the short-term answer.

However, for the long-term the uptrend will remain in place. Long-term, the SPX should continue going up without doubts. Only the short- and intermediate-term movements will give some trouble, not only in US but in Asia and Europe also.

Central banks world-wide have embraced easy money policies that massively increased money flows into every sector. In the US, after the financial crisis of 2008 equities were cheap given the relatively low US dollar, and much of the newly-created money found its way into the US stock market.

Now investors seek value and safety, and US equities, while now relatively expensive, are seen as providing a safe haven as economic growth slows in Asia and Europe.

We have seen the result in the current rally, as overseas money flows into the US. Watch the overnight Globex market and you’ll see overseas investors hitting every dip since August 24.

This gives the Fed a little wriggle room on interest rates. If offshore money holds the US equity market up the Fed may feel it doesn’t need to, so that particular impediment to a rate increase is weakened.

The US stock market is moving further into the favorable season. Any short-term retracement could give seasonal buyers an opportunity to get in, and we have three weekly momentum lines overlapping at the 2038 area that should prevent any retracement from going too far.

Beyond that the central banks, the new Masters of the Market, will determine what happens.

b) Short-term

SPX daily chart

SPX daily chart

The S&P500 index made a doji pattern on Friday, a sign of indecision. But the short-term uptrend from the broken neckline of the bullish double bottom remains intact and strong.

This week the 10-day moving average line at 2080 will be very important. It overlaps the four-year uptrend line. This long-term uptrend line was broken once in August and generated momentum to the downside. A break below it now could repeat that pattern if the price also breaks down through the 20-day moving average line and the yearly pivot level at the same time.

The neckline of the double bottom is in the 2030-2020 zone. That will be short-term major support. The index may drop to test the neckline if 2080 fails to hold up.

Traders are hoping that happens, so they have a better opportunity to go long. But the market typically inflicts maximum disappointment, so what everyone expects is less likely to occur. We may instead have a series of teases – small retracements that quickly reverse.

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

Member content

Download the full trading plan here: 151109-plan

ESZ5 Daily chart

ESZ5 Daily chart

Last Friday ES had a small reversal sign that was not confirmed by the closing price. It looks like a brief testing move by just pulling into the 10-day moving average line. So far the Bulls are still in control.

Today the 10-day moving average line will be very important. In order to confirm Friday’s abortive trend reversal signal, ES needs to go under 2073 and hold below it for closing today. Without this it is likely for ES to repeat last Friday’s range or go higher up to 2110-14.50 to test the recent highs, if last Friday’s low is held up through overnight trading.

Short-term still has an extremely overbought condition. The intermediate-term starts to move into the overbought area, but still has some room to move before reaching extremely overbought levels. Overall the US market is bullish and strong. A small pullback or retracement shouldn’t change the uptrend direction. More likely it will be bought by new buyers and help to hold up ES above the key support level at 2035

Support and resistance

Major support levels: 2039-35.50, 2027-25.50, 2016-14, 1995.50-96.25, 1940-33.25
Major resistance levels: 2103.75-02.50, 2114.50-16.50, 2134-35.50

Outlook

Short-term — Bullish
Medium term — Bullish
Long term — Bullish