Weekly Preview – trading plan for July 6, 2015

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

The S&P 500 cash index ($SPX) closed at 2076.78 last Friday, down 24.71 points, a 1.1% loss for the week.

Last week SPX lost ground. Most of the loss stems from the Greek default on its loan payment and increased fears of a Greek exit from the European Union; the more worrisome element is the potential for other countries to follow the same path.

The Greece referendum on Sunday appears to be ending in a No vote, and the results will directly influence many global markets this week.

Technical analysis

a) Long-term

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SPX weekly chart

The short-term outlook for US equities is roiled by the continuing Greek drama. It has gone on too long, it is difficult to understand, and at some point investors will simply stop paying attention. But the long-term picture is less opaque and less affected by the crisis-du-jour. Only the short- and medium-term outlook will be changed by Sunday’s vote… unless others decide to copy Greece’s strategy.If that does not happen, the long term uptrend will remain intact unless/until the SPX falls below the 1850 level.

We think current events in the Chinese market are likely to have a bigger long-term impact than Greece on US equities. So far the Chinese stock market had dropped 49% from the all-time high of 5178 reached on June 14.

Losing half the value of the index in little more than two weeks is pretty shocking, but the decline needs to be seen in the context of a market that moved from about 2000 to 5178 in one year. Nevertheless the Chinese central back is moving aggressively to inject liquidity into the market to slow the decline.

In conjunction with an increasingly shaky real-estate market, literally tens of millions of the newly-minted middle-class are now threatened with large losses, and are in turn threatening the social stability that is essential for the Chinese economy.

So far it is not clear if the measures introduced by the Chinese government will work, or if the government will move toward some sort of quantitative easing program. But China is now officially the world’s largest economy; just as a matter of scale, the problems in Greece are tiny in comparison until the begin to affect the rest of the EU/.

Up to now we have not seen any impact on US equities from China’s market decline. But at some point, we should see direct or indirect influences in our market.

The probable result is an extension of the sideways range US markets have entered. We will probably stay inside the yearly range 2138-1980 longer than we expected. If the SPX falls below February’s low, we expect it to trigger a medium-term correction.

b) Short-term

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SPX daily chart

In the short term, the SPX has been held up since November by the 135-day moving average. That line is now broken, and it is now the 200-day ma that is providing support. If the SPX breaches this support, it is likely to trigger a decent correction.

This week the yearly pivot level is overlapping the 200-day moving average lines. All eyes will focus on this area around 2054. There is the possibility of an early summer rally is this support holds, but last week’s decline is not likely to be entirely recovered immediately. The loss broke several important support levels and could result in further losses in the coming weeks. The Greek vote, if it is No, will cause at least a spike down.

Member content

Here is the member content for the week of July 6, 2015. Download the full analysis here: 150706-plan

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

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ESU5 Daily chart

Last Thursday ES had a small pullback from its prior day’s bounce, but it still closed below the 135-day moving average line (the broken intermediate-term support). The bears remains in control of the short-term trend.

Today the results of Greek Referendum will largely influence global markets. For ES, 2055-45 zone will act a very important zone. This zone directly determines next intermediate-term and long-term movement. If this zone holds, it will lead the ES to repeat last week’s range move or attempt to move up to fill the 2095.50 gap, If it fails to hold, a break below it will trigger selling and cause the price to drop quickly into the next support zone 2030-28 or lower toward 2010-2000 zone.

The major support levels: 2053-54.50, 2043.50-45.50, 2019.50-18.50, 2010-08
the major resistance levels: 2095.50-96.50, 2107-08.50, 2122-25, 2134-36.50

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

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