S&P 500, Weekly

At the time of writing Asian shares are on decline with Nikkei down by 1.2%, Nifty 0.97% and Hang Seng Composite down by over 3% and according to Bloomberg Shanghai Composite is down by 8% even in the government managed market. The US stock market finished Friday in the red, with S&P500 index losing 1.07%. Apart from the Fed expressing their commitment to raise interest rates market participants have been worried about valuations getting dear. S&P 500 P/E is getting close to 18 and disappointments with Caterpillar, 3M, IBM and Biogen Ideg’s earnings reports added to the worries of this market not being healthy enough to push into new highs. Additionally we had Apple publishing a record high quarterly result but the stock was hammered down by 9% the next trading day. This is not a sign of a bullish market but rather indicates that the willingness and commitment to pay higher prices and keep the uptrend intact is weak. China PMI being negative and a 6.8% drop in the US June New Home Sales report added to the negative sentiment. A look at the sectors reveals weakness in key sectors. All sectors came down last week but Industrials, Semiconductors, Basic Materials and Energy Stocks show signs of technical weakness.

S&P 500 e-mini future (ES) fell down from the resistance as expected and finished Friday’s trading inside the supportive range published in my previous reports. It is now trading near levels that should attract buyers .The price is at weekly pivot and fairly close to the lower Bollinger Bands and a 50 week SMA. Last week’s high was a lower high and suggests technical weakness in this index and price has now opened outside the up trending regression channel after wedging and then breaking out of the wedge.

S&P 500, Daily

ES reached my support range of 2073 – 2080 on Friday’s trading and the low of the day coincided with a 61.8% Fibonacci level. Stochastic oscillator is oversold and price is trading near pivotal support. As we have industrials etf XLI still is some distance away from the support levels I am expecting that ES cannot yet move higher but will either consolidate or correct further before finding serious demand. Financial sector also has space to correct lower and the same applies to Technology as well. This in fact applies to quite a few other sectors too and is likely to drag the US stocks lower before buyers emerge. Support and resistance levels in ES are at 2078 and 2116.50.

S&P 500, 240 min

Price is trading between two intraday support levels at 2064.50 and 2078 while Stochastics is at the oversold threshold. The nearest 4h resistance level is at 2091.50 where a declining trendline coincides with the level. There was a hammer candle on Friday night but no follow through after the candle was formed. Market has been dropping for 4 days so we might get a move against this trend and a test of next resistance level. If ES can create a higher intraday low and hold above 2078 price can move higher towards the next resistance at 2091.50.

Conclusion

Long term picture in S&P 500 index has turned more bearish with the index making a lower high. The supports however are still in place and should attract buyers at levels not far from the current price action. This will probably lead to rally but due to the overall weakness in different sectors I expect that this rally will lead to another lower high and more sideways ranging before the market can become directional again.

Intraday chart shows some signs of buying in a form of a hammer in the 4h chart. This was probably short covering before the weekend and this morning the quiet market has been ranging sideways with low liquidity. After moving lower for four days it would not be a surprise to see a move higher but we need to see how traders will react once the US market opens and some serious volume comes in. Look for momentum reversal signals at support levels.

Janne Muta

Chief Market Analyst

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