Weekly preview – trading plan for Nov. 30, 2015

Weekly Outlook – S&P 500 cash index (SPX)

The S&P 500 cash index ($SPX) closed at 2090.11 last Friday, up 0.94 points for a fractional net weekly gain.

Last week: the short holiday week didn’t bring much excitement to the US market. The narrowest range has been formed. Market sentiment now leads many market participants to expect that after the consolidation the SPX will rise or at least hold up through the end of year.

This week: Good-bye Thanksgiving, hello Christmas. The entire month of December and into early January is usually the best time of the year for stocks. The short-term overbought condition may lead the index to retrace down a little bit. But the bullish market sentiment could absorb any declines  – like last Tuesday and Friday –  and continue plowing head.

Technical analysis

a) Long-term

SPX weekly chart

SPX weekly chart

In a very short trading week the SP500 index made a narrow weekly range move and formed a weekly doji pattern below the broken four-year support uptrend line. It indicates there will be some kind of short-term breakout move in the coming weeks.

The outlook for the long-term uptrend didn’t change much last week. Only the intermediate-term or short-term may be disrupted by external events, including a Fed rate hike — real or rumored – on Dec 16.

External events can always move the market. Those uncertainties aside, here are three possible scenarios we are watching in the intermediate term:

1. The 2095 resistance line holds the index down through the end.

This could indicate that sub-wave 2 of wave 5 is not yet complete. The index may still want to go back down to retest the neckline of the double bottom area once before price moves back up. If this is the case, the index should go nowhere. Sideways to the end of the year should be expected.

2. A break above 2095 resistance line could lead index to go up the 2120-30 zone to retest May’s high.

Right now the majority expect the Fed will hike interest rates in December. Overseas money is flowing into US markets and is probably having as much impact as local investors. An interest rate increase – which will strengthen the US dollar even more — will attract more foreign money inflows and could support the index to move higher into the end of the year.

3. The index moves up to complete the breakout pattern.

The full target for the breakout from the double bottom is around the 2162.50-2154 zone. As long as the index doesn’t fall below 2055-43, traders following that pattern move will not give up and will continue buying on every dip.

If the 2055-43 support area is broken, a weekly close below 2033-21.50 would be required to invalidate the short-term bullish pattern and form a bearish intermediate-term double top pattern.

That is not the most likely development, and in the absence of a decline of that magnitude the market is likely to hold up or break out to the upside in the coming weeks or in January.

b) Short-term

SPX daily chart

SPX daily chart

The S&P500 index spent the past six days under 2095 and above 2080. The consolidation didn’t give much insight into which way the price will go. This could be related to the short holiday week. But it didn’t stop the buyers from moving into the market on the pullback.

Based on the daily chart, the index managed to hold above its fast momentum lines (10EMA and 20EMA) since the rally on Nov. 18. For the first day of this week we may see the index remain inside last week’s range.

But after that it is time to make a decision on next direction. Fed Chair Janet Yellen is giving speeches on Wednesday and Thursday. Her comments could easily move the market in either direction.

The 2055-45 area is a major support zone. As long as this support holds the market up, BUY THE DIP will be default mode for traders. However the index also needs to close above 2095 to make a re-test of the year’s high area.

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

ESZ5 daily chart

ESZ5 daily chart

Last Friday, with only a half-day of trading, the ES managed a small gain to close the week almost exactly where it began. On Thanksgiving, with no participation from US traders, the ES ran up to 2098.25 only to give it all back after the holiday. The pump and dump move was a typical low-volume holiday move.

For the last day of November, the price could travel within last Friday’s range (2098.25 to 2080) if there is no market-shaking news. Buyers will continue to buy on every dip.

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The four-year uptrend line still should be the key line to watch. A move above 2098.50 is likely to push the ES higher to challenge the November monthly high near 2110.25. Failing to move above 2093.50 could lead ES to down to test Friday’s low area 2081.50 or a few points lower. 2055.50 is a major support line and should hold the ES up for the monthly close..

Support and resistance

Major support levels: 2055-56.50, 2033-31, 2001-03, 1995.50-92.25, 1975-72
Major resistance levels: 2103.75-07.50, 2114.50-16.50, 2123.50-25, 2134-35.50

Outlook

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