Weekly Market Forecast for March 20th, 2016
This past week was another great one for the bulls, pressing most indices into the green for the year. The exception was the S&P500 which has another 13 points to pair it’s 2016 losses. We think we can get this move to take place heading into Easter Weekend, during this upcoming shortened trading weekend (markets are closed on Friday).
Markets started with weakness on Monday as the Bank of Japan opted not to slash their interest rates into negatives, pending doing some more research. Not surprisingly equities and risk assets dropped on this news, but were promptly bid back up by the close of the session (on weak volume).
Wednesday was the big day this past week, with Janet Yellen announcing there will be no rate hike, which surprised few. The surprise came when she gave a more bleak economic outlook for 2016 and lowered expectations from 4 hikes this year, to just 2. The Fed Dot Plot (below) showed that most participants voted for lower rates for longer periods of time. This was a reversal from their previously noted trajectory. The markets went wild and rallied 30 points!
This rally ran dead smack into some serious overhead resistance at the 2,050 level and closed below at 2,047 by 4pm.
Technical Analysis Outlook
Upcoming Week Sentiment: Slightly Bullish – Target 2,059 on S&P500
The technicals continue to signal extremely over-bought market conditions, however, one important aspect most new traders miss out on is that these “indicators” can stay oversold for a long time before the eventual capitulation and reversal takes place. Think of an engine redlining at top speed – it can stay there for a while before the motor blows. Same idea in the markets.
This upcoming week we will probably bounce the needle off the redline a few more times before we start the late March tumble on Monday March 28th after Easter. This period has been very bearish seasonally in the past 31 years.
We believe that Monday and Tuesday will be overall retracement days, but we will finish the week near 2,060 by Thursday on declining volume. This will set us up in perfect condition for a broad sell off back down to the 2,000 handle as shown below.
A few observations from a technical analysis perspective:
- This rally is running into overhead resistance connecting the last three market tops, each of which were actually lower than the previous, and also lower than the high 2,130 high of 2015
- Volume on this rally has been extremely weak – indicating a short covering rally, and a lack of buyer strength
- All indicators are over-bought, but can stay there for a while longer
- Bollinger bands (top right) are very bullish and we are riding the upper band
- Price action has smashed through the moving average (bottom right), and back and filled to test them as support (bullish)
From a broader trend perspective, we can make some bone chilling observations:
- This 7 year bull run seems to have stalled in 2015, and is now placing lower lows, and lower highs (bearish trend)
- Rounding top pattern in the making (red shaded half-circle)
- Volume is supporting the down months, and the up months are on very weak volume, indicative of more seller pressure to come
- The 23.6% Fib retracement (or first support zone) is all the way at 1,797
- The 38.2% Fib retracement (or second support zone) is right at the previous high before the housing bubble burst (1,550 to 1,600)
Our 2016 outlook is still a target of 1,700 with a lot of downside economic pressure, a Donald Trump presidential bid making investors nervous, inflated asset prices due to free money policy since 2009 and company share buybacks financed by the lowest rates in history! Fasten your seat belts, it is about to get rocky from here
Fundamentals and News Events for Upcoming Week
After a crazy week of economic releases, we are about to slow down this week and trade more on technicals and supply and demand then infusions of optimism on lower rates.
Wednesday is the most important day for the US, as we see New Home Sales and oil inventories. In the past few weeks, as goes oil, goes the equity market. We are seeing an increased inventory build, but this news of a meeting in April 17th is once again fueling optimism of a production cut among the big oil exporters.
It is otherwise a slow economic week – and provides a real test for the market to see if we can keep pressing higher in the absence of central banks spiking the punch bowls.
|MonMar 21||10:00am||USD||Existing Home Sales||5.32M||5.47M|
|8:45pm||AUD||RBA Assist Gov Edey Speaks|
|TueMar 22||1:30am||AUD||RBA Gov Stevens Speaks|
|4:00am||EUR||French Flash Manufacturing PMI||50.2||50.2|
|EUR||French Flash Services PMI||49.5||49.2|
|4:30am||EUR||German Flash Manufacturing PMI||50.9||50.5|
|EUR||German Flash Services PMI||55.1||55.3|
|5:00am||EUR||German Ifo Business Climate||106.1||105.7|
|EUR||Flash Manufacturing PMI||51.4||51.2|
|EUR||Flash Services PMI||53.5||53.3|
|GBP||PPI Input m/m||0.4%||-0.7%|
|GBP||Public Sector Net Borrowing||5.4B||-11.8B|
|6:00am||EUR||German ZEW Economic Sentiment||6.3||1.0|
|EUR||ZEW Economic Sentiment||8.2||13.6|
|4:00pm||CAD||Annual Budget Release|
|WedMar 23||10:00am||USD||New Home Sales||512K||494K|
|10:30am||USD||Crude Oil Inventories||1.3M|
|ThuMar 24||5:30am||GBP||Retail Sales m/m||2.3%|
|8:15am||USD||FOMC Member Bullard Speaks|
|8:30am||USD||Core Durable Goods Orders m/m||1.8%|
|USD||Durable Goods Orders m/m||4.9%|
|7:30pm||JPY||Tokyo Core CPI y/y||-0.1%|
|FriMar 25||8:30am||USD||Final GDP q/q||1.0%|
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