Every week we start Sunday night by looking at the upcoming economic events – the ones that are scheduled and predictable – for the coming week. One of the first things we look for is statements from the presidents of the various Federal Reserve regional banks, because most of the time that’s where price movement originates.

A month ago they were falling all over themselves to find an audience. In a typical week there were eight or nine statements or speeches from Fed officials, and often something from the Chair as well.

This week there are five, none of them looking very exciting. (Chicago Fed president Charles Evans is talking at 5:00 a.m. this morning at the Surrey County Cricket Club in London. And the Chair is missing in action).

For US equity markets this is perilously close to benign neglect. But there’s a reason for this new-found reticence: the message – or at least the presentation of the message – has had to change.

For the last two years at least, the Fed has consistently talked the market up with two alternating messages: everything is wonderful, and because it is, we’re seriously considering raising interest rates… sometime, but not now.

Now markets are doubting both sides of that equation. Everything doesn’t look very wonderful, especially after the employment numbers on Friday wrecked hopes for a quick end to the current pull-back. The markets no longer believe the Fed will ever raise rates – the likelihood of an increase in June is sharply discounted – or that it would have any beneficial effects if it did.

Time to change the message… and maybe the messengers.

Last week

The S&P 500 cash index ($SPX), the large-cap index of US equities, closed at 2057.14 last Friday, down 8.16 points for net weekly 0.3% loss.

All things considered, that wasn’t bad. The market has been trending down since it made a high at 2105 the third week in April, and the employment report Friday was regarded as worse than expected. It banged the price down almost to 2030 before the open Friday. But then optimism triumphed over reality and the index regained 30 points into the close. 

It was a week to take profits. But it managed to hold above the 50-day moving average line for closing. This pullback doesn’t look like it is finished yet; but the damage has been relatively painless so far.

This week

2082-2075 remains a key zone for this week. A failure to move above it will continue to encourage sellers and push the index down until the short-term indicators reach neutral or oversold territory. That’s a little way off yet.

For the intermediate time frame, the index is moderately overbought but still bullish. The short-term indicators are showing a sell signal. We might get a little bounce this week,  but if we do it won’t be much.

The intermediate outlook is mildly bullish; the short-term outlook is bearish. As always, the time-frame you chose to trade will determine your preference.

Today

We are short-term traders, and we use the S&P500 mini futures (ES) as our trading vehicle for the US equity index.

ES gapped down at the open Friday, but managed to hold the overnight low and bounced back up to close green for the day.

We may see a strong move today, and there are several possibilities to watch for.

On the upside, the ultra-short-term oversold bounce could continue first but may stop around 2071-68 if the ES is forming a short-term head-and-shoulders pattern. A move above 2078 will negate that pattern and so be bullish.

On the downside, remaining under 2065.75 raises the possibility of a sideways movement between the 20- and 50-day ema lines. Watch the 2028.50 level. If the ES breaks it, we may see a further decline to the 200-day moving average line (currently in the 2012 area).

However the most likely result today is a repeat of Friday’s range (2054.50-2030.50) and an attempt to fill the upside gap at 2057.

After that, traders have to watch to see which direction the ES breaks, and follow the breakout direction for very short-time-frame trades.

Major support levels: 2023-20, 2011.50-09, 2003-1998.50, 1980-75
Major resistance levels: 2075-78, 2093-90, 2103-05.50

Visit www.naturus.com to see Nat’s full outlook for gold, oil and the ES in the week ahead. Free.

Chart: SPX Daily chart to May 6, 2016

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