S&P Outlook For The Week

Posted on November 16, 2009 at 8:56 am

Submitted by Nic Lenoir of ICAP..Hat Tip Zero Hedge

We had discussed last week that even though the S&P future was back around the tops for the year, we did not have enough elements to think the turn was right upon us as the price action and its fractal nature did not have the makings of a complete bullish impulse.

We are now starting to have some elements. Purists will realize we made the tops last week with only divergence on a 30-minute and 60-minute interval charts, which is historically only indicative of a short-term retracement. As can be seen on the 60-minute chart we had slight divergence on the 11th and we have been consolidating since in a wave 4. It is not clear whether wave 4 is completed just yet. Watch 1,095.50 for now. As long as this level is not violated we may be in the last leg up of the impulse started at 1,026, but if it violated expect a pull back towards 1,082/1,084 before we make new highs.

Picking out the top here might be tricky, standard extensions for the last move up range from 1,013 to 1,029 in the SPZ9 future. We will monitor closely the structure of the price action in order to refine the level we see for the possible top as I expect a subsequent sell-off of at least 50 tics once this last leg is complete. In fact I expect we will retest at least 1,033. It is very interesting to note that on the daily chart we have divergence in RSI, and very pronounced divergence on the MACD. As long as the pattern is not violated we should still expect a sizeable retracement down to 943 or 875 down the road.

On a separate note the Dax has violated the resistance I was observing, and I would watch closely weather we close above 5,762 or how we trade tomorrow as if today is confirmed we would go challenge the highs which would in turn imply the top in S&P will be closer to the higher end of the range mentioned hereabove.