S&P 500, Weekly
As the US and Canada are celebrating the Labour day the markets are likely to be subdued today. We will take this opportunity to visit the US stock market as it has had strong moves since my last report on stock indices. I suggested in my previous report August 12th that S&P 500 index future (ES) will move lower after making lower highs and, that it would be the time to enter the short side of the market by selling rallies.
Two weeks ago ES found support at a weekly pivotal low from October last year and rallied strongly after printing a low of 1831. This suggests to me that the price volatility will settle down for the near term. In other words, I don’t believe ES will move below 1813 but that it will fluctuate between it and 2054 resistance over the coming week. MFI and RSI are oversold which hasn’t happened since October 2014. This supports my view that market was over stretched to the downside at 1831. Also, price has moved outside the regression channel and is therefore very much in line with my predictions on May 7th: stocks are in a topping phase.
S&P 500, Daily
ES jumped higher when buyers stepped in at a pivotal support between 1813 and 1883.25. Price rallied strongly to 1992.75 after which ES has fluctuated sideways above 1900 – 1920 range. The last time market rallied from 1813 support (October 2014) was in a different context. Then market was still trending higher and upward momentum after the 1813 low was considerably stronger. This resulted in price moving into a new closing high by the end of the month. This time there is no such momentum and ES will stay below previous highs. Therefore, price swings between support and resistance levels provide traders with plenty of opportunities.
With the market participants waiting for the FOMC meeting on September 17th I expect that price will move sideways between the now created low and the resistance levels above. I don’t think it likely that ES would move below 1813 but rather create a lower high above it. Nearest support and resistance levels are at 1883 and 1992.75 while the next significant levels are at 1813 and 2046.
S&P 500, 240 min
Support below 1920 and resistance above 1960 have forced ES to move sideways and this has created a triangular formation of which price has broken out on the downside. This suggests there will be weakness before a move higher can resume. This is supported by the fact that the number of stocks falling in the NYSE is increasing more than the number of stocks rising. In addition, the short term volume statistics indicate weakness in the intraday picture. As there is higher time frame support relatively close by, I am looking for short exits and long entries at and around of 1850 support.
Conclusion
In the long term, the US stock market has broken out of the rising trend channel and entered into a topping phase which is usually fairly volatile. This is obviously good for our traders as there will be increased number or opportunities to catch bigger price swings. I expect the 1813 – 1883 support area will hold and eventually move the market to test 2046 resistance. In short term the support area between 1850 and 1183 is likely to support price while the first significant resistance level is at 1992.75.