6 March, 2015
I suggested in my previous S&P 500 analysis that the market could be correcting lower. This was based on both technical and sector analysis. On February 25th I wrote: over the last six trading days the money flows have been once again favouring the Utilities and Health Care sectors over all the other sectors, while Energy and Financials have lagged the most. All this put together indicates that we could see the S&P 500 slowing down and possibly correcting lower in the course of the next few trading days. Index was trading at 2011.25 points at the time of my analysis and is trading at the time of writing at 2098.75 (-87 points).
Today’s an NFP Friday and the markets are likely to be in a waiting mode as the unemployment readings are important indicators for the Fed in deciding the timing of the first rate hike. Consensus expectation is 240K new jobs and should the number deviate strongly to the downside it’d be likely that the Fed would be more patient and delay the start of the rate hikes. Another important data point is the Average Hourly Earnings which will give an indication on the ability of consumers to consume. The Nonfarm Payrolls, Average Hourly Earnings, Labour Force Participation Rate and Unemployment Rate for the month of February are published today at 13:30 GMT. For other economic releases, see the HotForex Economic Calendar here.
The last two weekly bars have been narrow bodied Dojis. This indicates lack of demand and increases probabilities that this market will correct lower. As there has been no upside momentum over the last two weeks, Stochastics is overbought and turning lower. In addition, the upper Bollinger Bands are near and have been limiting upside. Support and resistance levels in weekly picture are: 2062.50, 2088.75 and 2117.75.
S&P 500, Daily
After wedging a bit at the time of my previous analysis S&P 500 e-mini future (ES) moved out of the rising regression channel. Price has been supported by the pivot high at 2088.75 and 23.6% Fibonacci level with a new resistance at the latest high (2117.75). Support at 2062.50 coincides with the lower Bollinger Bands and the 38.2% Fibonacci retracement. Should ES correct further the next important support level is 2020.50. The fact that price has been reacting higher from the proximity of 2088.75 level in suggests that this level is seen as an important support.
S&P 500, 240 min
Index futures have attracted buyers at 2085 area but the resistance from both the descending trendline and the previous support at 2101 level have this far blocked the moves higher. At the time of writing there isn’t much momentum to either direction as market waits for the NFP release but the moves from 2085 have been strong (hammer candles). This suggest there will be buyers at this level today. Should this level be broken the next support level at 2062.50 coincides roughly with the 1.618 Fibonacci extension level. It is also a former resistance which adds to the significance of this level.
In the longer term picture US stock market is now fairly overbought and the last two weeks’ weekly narrow body candles indicate that there is not much willingness to pay higher prices for equities but no strong need to sell off either. At the same time technology, the heaviest sector in the S&P 500 index is close to channel top and Apple the heaviest weighted stock in this sector looks like it could correct lower after a bearish weekly candle last week. Even if this correction takes place I still believe this market can move higher and therefore look for buying opportunities at support levels.
Technicals and macro view are giving a slightly mixed message: if the employment numbers are weak the Fed is likely to start rate hikes later which would be good for the stock market. However, at the same time strong employment numbers would indicate an improving economy, which again is a reason to stay long in Stocks. Market reactions to today’s NFP release are therefore an important indicator of things to come in the near future. If market finds support either at 2085 or 2062.50 and reacts higher with good momentum (that takes ES into new highs) the technical picture stays positive and supports the long term bullish view.
In regards to short term trading ideas I am looking for minor time frame reversal signals at the above mentioned support and resistance levels once the employment numbers are released and the market is likely to have some volatility again. Market is not likely to move strongly before the employment release later on today. Should there be no strong deviation from the consensus expectation the nearest technical levels will be honoured but higher deviation from expectations will be translated into stronger whipsaws in price. If the latter is the case, then momentum reversal traders should be looking to trade levels further away from the current price.
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Chief Market Analyst
Disclaimer: Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of purchase or sale of any financial instrument.
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