Weekly preview – trading plan for July 11, 2016

Weekly Outlook — S&P 500 cash index

The S&P 500 cash index ($SPX) closed at 2129.90 last Friday, up 26.95 points for 1% week gain.

Last week: A strong job report on Friday helped four major indexes rally to near their old highs. The SP500 index rose to its June/October highs to close at the highest level since last July, just a few points away from a new record.

This week: It will be the July major month option expiration week. The SP500 index could remain strong for making new highs. But more than 10 Fed members speaking this week also could heat or cool this market and lead the index to have a big whipsaw move.

Technical analysis

a) Long-term

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SPX July 8, 2016. Weekly chart.

The SP500 index closed under last July’s high and gave out a bullish outlook in longer time frames. The NYSE composite index also neared an upside breakout. Both leave us with a belief that an upside breakout is likely.

NYSE Advance/decline

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NYSE Adv/DecJuly 8, 2016.

Market breadth was also very positive on Friday. Advancing issues outnumbered decliners by a ratio of 7:1. That was enough to push the adv/dec lines to new records on Friday. It usually indicates higher prices will follow.
S&P500 index weekly

The weekly PMO indicator is also bullish. The signal line is rising, but it is in neutral area and still far from overbought. The Slow STO indicator is also in the neutral area and getting ready to move up again.

Both indicate that the outlook for the index is strongly bullish for the intermediate-term, and likely to break out higher. Therefore, we continue to regard the long-term upside targets (first target 2250) from last week’s outlook as still valid.

b) Short-term

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SPX July 8, 2016. Daily chart.

The SP500 cash index broke last November’s high and closed above it on Friday. The closing price was strong and a very healthy advance/decline ratio also supported the short-term price advance. We could see a continuation high move first before the index reverses later.

The PMO indicator crossed over its signal line and moved further up. This is a bullish sign for the short term.

2070-80 becomes the current major support zone. And it is likely to see new buyers step into the long side if there is an ultra-short-term pullback to this area.

2135.50-37.50 will be a key zone for this week. A break above it could lead the index higher up to 2150-85 or higher if the momentum is strong.

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

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ESU6 July 8, 2016. Daily chart.

ES had a monthly high breakout move last Friday, and closed at June’s high area. The price action was strong and bullish.

Today 2126.25-34 becomes a very important zone. This was previously a major strong resistance area, which has been holding ES down for more than a year. The ES needs to break through this zone to make new highs and close above it to give final confirmation that the yearly resistance zone is broken.

A failure to break above this zone could lead ES to repeat last Friday’s range or move down further to close the 2092 gap if the price breaks below 2097.

However a pullback today will likely be regarded as an opportunity for buyers to get in on the dip.

Support and resistance

Major support levels: 2103.50-00.75, 2093.50-92, 2085-83.50, 2075-73.50
Major resistance levels: 2033.75-35.50, 2043.75-45.50, 2056.50-57, 2065-68

Outlook

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

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