The S&P 500 cash index (SPX) closed at 1165.15 on Friday for a net weekly gain of 18.91 points, about 1.6%.
Once again the SPX is positive for the first week of October. There was some disruption early Monday, but by Tuesday the price quickly bounced from the low to resume the rally.
At the end of the week traders were focused on the beginning of the earnings reports. As usual Alcoa (AA) went first, and its upbeat report and guidance on Friday helped the DOW to finally break through the 11000 level and hold for closing.
We expect earnings should continue to drive the market short-term, but option expiration this week could add some volatility. Forex fluctuations may also impact the market this week. High-level IMF meetings over the weekend are attracting attention to currency issues.
The SPX managed to breakout 1150-1140 range and held up to close near the high. The price behavior is bullish, and ES is likely to be pushed higher in the coming weeks if the support in the 1150-1140 range holds.
For the A-B-C upside correction pattern, the C top should end around 1161.22 area. Intraday the SPX made about 6 points higher than that target on Friday.
That means the A-B-C pattern should now be completed and the price needs to do some retracement. But this pattern could also be breached and lead to more upside movement.
Watch the 1175 area carefully. If the price breaks 1175 this week, and closes above it, then the April high area is likely to be the target for the next move, and the continuation rally could last until our next CIT day Nov 5 or Nov.12
SPX Weekly chart
Monthly resistance 1210 and support 1100; Weekly resistance 1187 and support 1140
E-min Daily Outlook (ESZ0)
The ES is near the first top line of the uptrend channel. If ES can’t breakout 1168.75 in the early morning session, the price could pull back around 1150-48 for testing. For the option expiration game this week the downside fighting line is near 1145 and the upside fighting line is near 1175. 1125-1117 is the major support zone.
Daily momentum indicators remain strong. $VIX broke down its support line 20 Friday and is heading toward the next support around18. All this indicates there is still a little room on the upside.
Trading strategy for Monday October 11
Friday the ES reached 4 points higher than the previous day’s high. The momentum move has less strength than before but it was still able to inch the market higher before falling back a little.
Today, if ES can’t break out 1164 in overnight trading, the price could pull back down into Friday’s low area 1153-52 or lower to 1145.50-43 range (long entry) for testing. A break above 1164 could push price up to 1168.75-70.25 (short entry) or higher 1176.25-78.50 (short entry) if the morning sessions breaks the 1172.75 line.
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ESZ0 intraday – 60-minute bars
