Trading plan for February 6, 2012

WEEKLY OUTLOOK — S&P 500 CASH INDEX (SPX)

The S&P 500 cash index (SPX) closed at 1344.50 on Friday, up 28.17 points for the week, the biggest gain since New Year 2012.

Last week January’s non-farm payrolls report was very encouraging. The street cheered even though a few days earlier the Fed Chairman warned Congress about the risk of a “massive fiscal contraction” next year. SPX holds up its breakout level and likely will continue going higher.

This week there are few economic reports. We may see a small pullback move early in the week to the clear short-term overbought condition before the price advances again.

SPX Weekly chart

Technical analysis

Based on the weekly chart (above), SPX successfully holds up its psychological support at 1300 and closed up near the 1350 area. The price action was bullish, market breadth indices all showed strong, which indicates the bulls remain in control of this market.

Based on Elliot Wave Theory, SPX is in sub-wave 3 process of major impulse wave 5. The sub-wave 3 top could be near 1350-1345 area. But often the wave 3 will last longer and extend further. It could rally further if short covering continues. The full measurement 1376.55 for wave 5 remains the upside target unless the price breaks through that level, which will reset the target..

For the short-term, the 1345-1356 zone will be this week’s first resistance level; and could be the short-term top, given our CIT day at Feb.7. But it also could be a catalyst level if the bulls dominate this zone, and form the base for a push directly up to 1370 area to force the shorts in all time frames out of this market.

All the long, medium and short term indicators are bullish. Even though the medium term has an overbought condition, the short-term keeps rising after it self-corrects by performing a minor pullback to smooth out the overbought condition. This is bull market behavior. We can not eliminate the pullback, but we should expect buyers will continue stepping into this market while the price is doing its correction.

The put/call ratio remained under 0.90 last week and $VIX is back down under 20. There are some hedging activities going on by the big players which suggests we may see some pullback early in the week. But 1300 is the current major support level, and it should hold up on the first pullback — if there is one and if it goes that far.

Monthly resistance 1375 and support 1275; Weekly resistance 1360 and support 1310

Daily Outlook - S&P500 mini futyures (ES)

ESH2 Daily chart

Based on the daily chart, ES broke out January’s high on Friday and closed above it. The price action was bullish and indicates the short-term uptrend remains intact.

Last Friday ES was a little short of the 1346.75 area. Today we may see the price test this area first and reverse from it for small pullback move. The 1318 area will become first support and 1300 area will be major support. As long as 1300 line holds up, the short-term uptrend remains up.

Members, download the file to see the trading strategy for Monday, plus the weekly outlook for gold, oil, bonds and the Euro.

Date Added: 2012-02-05 14:50:19
Downloads: 31