Weekly market preview – trading plan for December 5, 2016

Weekly summary — S&P 500 CASH INDEX

The S&P 500 cash index ($SPX) closed at 2191.95 last Friday, down 21.4 points for a 0.9% net weekly gain.

Last week: the SP500 index had a minor pullback to its “ price breakout zone” after it had made an exhaustion high on Wednesday.

This week: we could see a continuation low move this week. Due to short-term and intermediate-term overbought condition and the FOMC meeting the following week, the selling could continue, but we expect the speed will be slower. The Italian constitutional referendum results may influence US equity market trading a little early in the week.

Technical analysis

a) intermediate and long term

161202-spx-weekly

SPX Dec. 2, 2016. Weekly chart.

The SP500 index remains bullish for the intermediate-term. The price is still holding along the line of the previous highs (the heavy green line on the weekly chart) and above the trend line formed by the rising bottoms (the thin green line). The weekly PMO indicator is about to give out a buy signal.

But one indicator is making me somewhat uncomfortable. The weekly slow STO indicator is moving into overbought territory. If this indicator starts to turn down, the bullishness on the weekly price could disappear. We shall watch this indicator closely to determine if the rally can continue in the intermediate-term or not.

b) Short-term

161202-spx-daily

Spx Dec. 2, 2016. Daily chart.

The S&P500 index had a brief pullback last week. Price returned to retest the “breakout point” at 2193.81, but this time price closed under 2193.81, which offers the possibility for short-term correction soon.

In the last three days of November there was orderly selling showing up at the close. Total was about $3.6 billion on the selling side. This could result from some fund managers liquidating a few equity positions to prepare for the Christmas holiday. The price decline wasn’t severe and has not changed the current uptrend yet. Just something to watch.

This week 2180 will be the first major support line for the SPX. Bulls will defend this line and try to push the index back up to the 2200 level or higher. But due to the short-term overbought condition of the PMO indicator, the 2180 support may not hold up. A move below it could run buyer’s stops and push the price down to the 2165-55 zone.

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

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161202a-es-daily

ESZ6 Dec. 2, 2016. Daily chart.

ES pulled back into its Aug/Sept high area for testing. 2180-78 will be a key zone for today. Holding above it could lead ES to repeat last Friday’s range in the early trading sessions.

2203-2200 will be today’s first resistance zone. A failure to move above it could give the impression that the ES intends to pull back down to retest last Friday’s low area around 2185-83.

The daily PMO indicator decelerated last Friday, and Slow STO indicator is moving away from extremely overbought territory. Both indicate that the ES may continue moving little lower. But 2175 is likely to hold ES up today.

Support and resistance

Major support levels: 2183-81, 2172-74, 2165-62.50
Major resistance levels: 2205-07.50, 2215.50-14, 2220.50-26, 2235.50-37.50

Outlook

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

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