Weekly market preview – trading plan for Aug. 22, 2016

Weekly outlook — S&P 500 Cash index

The S&P 500 cash index ($SPX) closed at 2183.87 last Friday, down 0.18 points for a tiny weekly loss.

Last week: SP500 index went sideways again, Even though it made new all time highs early in the week and ran some ticks on the downside, it mainly remains within the prior week’s range. A typical contraction move.

This week: The contraction could be ended soon, and the following move could explode into high volatility. The Fed is the driver; the mixed messages coming from the Fed could drive the market in n orderly fashion, but they could also send it spinning out of control.

Technical analysis

a) Long-term


SPX Aug. 19, 2016. Weekly chart.

Not much change in the long-term chart. Profit-taking at or near the 2200 level could be the short-term problem.

Since July the market has been slowly grinding up with frequent new highs on slender volume, and without any significant pull back.

The shorts have been getting murdered, but the Bulls have no conviction. It is not natural market price behavior.

The intermediate-term PMO indicator is still rising along with the price rises and remains positive, but it gets more overbought. It should be due for pullback soon.

b) Short-term


SPX Aug. 19, 2016. Daily chart.

SP500 index spent 11 days going sideways in a range from 2195 to 2170. It is due for a breakout move and it could be seen this week.

The Fed will be the major driving force for this market. Yellen’s speech on Friday may give a clear direction about any interest rate hike. The SP500 index could have a high volatility move.

Daily PMO indicator continues to move down. It indicates that internal strength remains weak, and there is limited room for a breakout to the upside.
On the downside, just about a year ago – on August 24, 2015 – we had a major down move when the index lost 133.75 points in a single day. Will history repeat? It certainly could, and the parallels should be enough to make you cautious.

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

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ESU6 Aug. 19, 2016. Daily chart.

Friday the ES managed to hold the price above the 20-day moving average line, but failed to make new highs. The volume remained light on option expiration day.

Today or tomorrow we may see the move that breaks out of the 2190-2165 range.

A move below 2162.50 level could trigger ultra-short-term selling; a break above 2195.50 could push the ES up to 2200-05 zone.

Momentum traders will follow the direction of the breakout when it comes, and that could extend the distance the market travels.

However most will focus on the Jackson Hole conference on Friday, hoping to parse every Fed utterance. That may tame the market action this week.

Support and resistance

Major support levels: 2155-56.50, 2146-43.50, 2133-28.50, 2103.50-00.75
Major resistance levels: 2188-89, 2196-93, 2103.50-06.50, 2214.50-12


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


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