Market preview – trading plan for March 7, 2016

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

The S&P 500 cash index ($SPX) closed at 1999.99 last Friday, up 51.94 points for a net weekly gain of 2.66%.

Last week: In conjunction with a bounce in oil prices, the SP500 cash index managed to move back around the 2000 level. It has almost recovered from the 10% loss in January and early February. Now it only has a 2% loss from the 2015 close.

This week: we should see a minor pullback this week due to an extremely overbought condition in the ultra-short-term and a major daily resistance line just ahead. The mini-futures contract rolls over this week, which may cause the price to fluctuate this week.

Technical analysis

a) Long-term

160304-ES-daily

SPX March 4, 2016. Weekly chart

The Index closed below the 50-week moving average line last Friday. The weekly PMO indicator fast line continues moving up without crossing above the slow line. Based on the weekly chart, the 50-week moving average line is most likely to act as the current strong resistance and prevent the index from advance.

There are several long-term resistance areas ahead that traders will be watching:

  1. A potential long-term bullish H&S pattern. The left shoulder high at 2019.26 formed on Sept 17, 2015, The Head high 2034.72 formed on May 18, 2015. Last week the index made a high at 2009.16, not far from the 2019.26 level. It could take the index another two or three weeks to form the right shoulder’s high.
  2. The 2020.86-1993.26 zone was the breakdown zone in January and led the index down 12% lower than last year’s close. Since then the price has bounced. It is not clear if the index has just tested the breakdown zone and bounced, or if the Bulls are re-establishing control of the market. Up to now, there is no confirmation that the Bulls will win.
  3. Time is the key. November to April is historically a good season for stocks. The season may help to hold the price up. But we shouldn’t treat this as business-as-usual. Based on our CIT system, the short-term high could be made within two weeks. Our CIT day is March 18.

b) Short-term

160304-SPX-daily

SPX March 4, 2016. Daily chart.

The fast 20-day ema crossed above the 40-day ema on Friday, which gave an early “buy” signal for the intermediate-term. Given the short-term over-bought condition, this early signal may be negated by a short-term correction or a sideways move.

However the 1940 neckline of the double bottom pattern needs to hold the price up if there is a pull-back, which mean there will not be much damage to the short-term up-trend.

The 200-day moving average (SMA) is largely used by fund managers. It is lying at 2023. This area is likely to see short-term longs exiting trades in a profit taking move.

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

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