Weekly preview – trading plan for Jan. 25, 2016

Weekly outlook β€” S&P 500 CASH INDEX (SPX)

The S&P 500 cash index ($SPX) closed at 1906.90 last Friday, up 26.57 points for a net weekly gain of 1.4%.

Last week: The US stock market bounced last week, for two reasons: first, a reaction to the ESB decision to leave interest rates unchanged and hints of a new QE in March; second, an short-term extremely oversold condition.

This week: The last week of January. It is possible for the SP500 index to hold above the 200-week moving average to the end of January monthly close.

Technical analysis

a) Long-term

160122-SPX-weekly

SPX Weekly chart

Last week the index bounced from the support level formed by the Year 2015 low and the Oct. 2014 low, largely because of a short-term extremely oversold condition. So far the short-term bounce didn’t change the bearish outlook for the long-term. But it did change the short-term outlook … for the moment.

Based on the weekly chart, a broad range from 2135 to 1800 has been defined. This range could be considered as the consolidation range for the long-term and intermediate-term.

For the bull market to continue the 1800-1775 zone has to be held up. So far none of the weekly closes confirms the start of the bear market. The assumption that it has rests mainly;y on the fact that 2015 closed below 2055.

In order to confirm the bear market has started the index needs to hold under 1900 line for this month’s close. As long as that condition is met (and there will be a struggle to do that) the index can bounce as high as the 1950-65 zone, without negating the beginning of the Bear.

Also next month the index has to break through the 1770 support line to confirm the outlook for a move lower. That will confirm the bearish double top is in play and more selling will follow. Otherwise the index is likely going sideways and will likely try to hold above the 1800-1775 zone for a while.

b) Short-term

160122-SPX-daily

SPX Daily chart

The short-term is oversold. PMO (price momentum oscillator) indicator reached last September’s low area and is getting ready to turn up. In the short-term there is no doubt the price could pop further. But the 1950-65 zone will be the first major resistance zone. As long as the index stays under that level the price likely will pull back into 1875 to search for support.

The index needs to move, up and down, to solve its oversold condition. There is a long-term selling signal above 2025 on the daily chart, Before index gets there, it has to deal with 1948.50 (the 20-day ema line ) first. Remaining below 1948.50-50.00 zone still indicates a bearish outlook for the short-term.

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

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