Market preview – trading plan w/o May 9, 2016

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

The S&P 500 cash index ($SPX) closed at 2057.14 last Friday, down 8.16 points for net weekly 0.3% loss.

Last week: SP500 index had a profit-taking week. It made a continuation low move, but still managed to hold up the 50-day moving average line for closing.

This week: The short-term minor pullback doesn’t seem to be over yet. It could have an ultra-short-term oversold bounce this week, but the 2100 overhead resistance line remains strong and is expected to hold.

Technical analysis

a) Long-term

160506-SPX-weekly

SPX May 6, 2016. Weekly chart.

Two weeks ago the S&P500 index gave an intermediate-term buy signal from the 20-week moving average line crossing above the 40-week moving average line. So far index still holds above the 20/40ema (weekly), and has a bullish outlook for the intermediate-term.

But the slowly-rising PMO indicator shows that resistance around the all-time highs could be too strong for the price to rally above that level in the short-term.

The intermediate-term indicator (SST) remains overbought, but is still holding above the 80 level to give a bullish signal. This suggests trouble for the short-term, which is in a minor correction stage. Once the short-term correction is over we will re-assess the longer-term outlook.

b) Short-term

160506-SPX-daily

SPX May 6, 2016. Daily chart.

A minor potential H&S pattern could be formed by SP500 index. The right shoulders could be lying around 2075-80 area, and neckline of pattern at 2035 area.

The short-term PMO indicator is still decelerating, and remains on a sell signal. The ultra-short-term oversold bounce may not be strong as we expect if PMO indicator doesn’t turn around.

The 2082-2075 zone remains as a key zone for this week. A failure to move above it will continue to encourage sellers and push the index down until the short-term PMO indicator reaches neutral or oversold territory.

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

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160506-ES-daily

ESM6 May 6, 2016. Daily chart.

ES gapped down at the open Friday, but managed to hold the overnight low and bounced back up to close green for the day.

Today the ultra-short-term oversold bounce could continue first but could stop around 2071-68 zone if ES intends to form a short-term H&S pattern. A move above 2078 will be bullish due to the breach of the developing H&S pattern.

Remaining under 2065.75 raises the possibility of a sideways movement between the 20- and 50-day ema lines or perhaps a further decline toward the 200-day moving average line (currently in the 2012 area) if ES breaks below 2028.50.

A repeat of Friday’s range (2054.50-2030.50) and an attempt to fill the upside gap at 2057 should be expected today.

After that, traders have to watch to see which direction the ES breaks, and follow the breakout direction for very short-time-frame trades. We may see a strong move today.

Support and resistance

Major support levels: 2023-20, 2011.50-09, 2003-1998.50, 1980-75
Major resistance levels: 2075-78, 2093-90, 2103-05.50

Outlook

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

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