The S&P500 relief rally reversed at the 1940 level as we had forecasted last week, taking a sharp dive on increasing volume. The overhead resistance from previous price levels, as well as a re-test of the channel support line going back to 2009, proved too much for the market to handle.
We are now sitting at a prime support level for the short term, between 1860 to 1880, an area full of previous lows, bounces, and candle tails. We expect this week to be a battle for territory, with the bulls fighting to pull back up to 1900 – 1920 and the bears attempting to break below support and form fresh lows and close below 1860.
The stage is set.
The weekly options market is pricing in a 50 point move on the SPX before Friday, February 12th.
This lands us at 1930 on the upside and 1830 on the downside.
Looking at the momentum, we can see that indicators have clawed out of the oversold territory, and have reset themselves. This is a clear sign we are ready to resume the downtrend and take a move lower this upcoming week.
Prices of the black goo have been very volatile in the past few sessions, starting the week near the $34 level and ending slightly above $30. We see a strong resistance above $34 and will sell into a rally up to that point, or get into a bearish trade on a close below $30 with above average 9-day volume.
Our oil trade led to a sizeable win last week, and we look forward to another trade this week.
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The week will begin pretty quietly and will stay that way through the end of Tuesday.
We will then see a number of highly important events, starting with Janet Yellen testifying on monetary policy. All eyes will be on how the Fed interprets the new employment data, and if they are still monitoring global economies, and what they think of recent market turbulence. This will be a market mover for sure. We then get to hear Janet speak once again the following day at 10 am.
Oil inventories will be vital for our oil trade, and we will be sure to trade cautiously around this event at 10:30 am on Tuesday. We may even consider closing our position outright, depending on how much profit we have by then.
Friday we finish the week with retail and consumer sentiment numbers, two massive indicators for the overall health of the economy.
Here is the full weekly chart of major events – created by www.ForexFactory.com:
Good luck and good trading.
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