Q3 2016 - S&P500 Outlook

S&P 500 [$SPX] Weekly Chart – 14 Period RSI

Charts in Attached PDF & Menotomyresearch.com

Momentum Measure Reaches Highest Point Since December 2014, Peaking at 66 RSI

Both price and momentum confirming higher levels. A series of all-time highs forming throughout July and August carried the S&P 500 to a record high close at 2,190. The Relative Strength Index touched its highest point since the Bearish Divergence (Marked Points 3 and 4 above) which took place as the rally of 2013-14 began to fade, hitting resistance at the top of the well-defined trend channel. Furthermore, the emerging trend of higher highs, has also produced higher lows. The June Pivot low at 1,990 and associated momentum low (Point D above) at 50 RSI, as well as the following Pivot low at 2,120 each held higher ground on the momentum measure, remaining above the 50 level. Support forming and above 2,100 seems natural as this level represents strong resistance near the previous record. On the other hand, the day-to-day price action has been uninspiring. A gap down from the 2,180 level in early September, although filled remains in play as prices consolidate in that range, perhaps accompanied by a slight uptrend

S&P 500 [$SPX] Daily Chart – Trading Volume w/ 50-Day MA

Charts in Attached PDF & Menotomyresearch.com

Price Action Remains Uninspiring Throughout Q3, Following Early July Rally to Record Highs

S&P 500 [$SPX] Daily Chart – Implied Volatility w/ 20-Day MA

Charts in Attached PDF & Menotomyresearch.com

Implied Volatility Touches Lowest Point of 2016 in Absolute Terms, Average IV Appears Close to Cycle Low

The period following the so-called “Brexit” was categorized by an enormous drop in Implied Volatility. Since that time, the market environment has been eerily calm. Minimal reaction to September Jobs, (Not Shown on charts) reporting a mere 156,000 added to U.S. payrolls last month. Presenting a potential buying opportunity, with the next clear catalysts for a volatility event four weeks off, as October Jobs and Election results are due in early November. From that point forward, December FOMC announcement at 2PM on the 14th should be circled on every trader’s calendar. It is fairly likely that another 0.25% increase to the Fed Funds Rate is firmly on the table. This would be
the second such move in as many years, and represent a commitment to the Fed’s effort to continue tightening of monetary policy, which is widely criticized for leaving rates “too low for too long.”

CBOE S&P 500 Volatility Index [$VIX] Hourly Chart w/ 20-Bar MA

Charts in Attached PDF & Menotomyresearch.com

S&P 500 [$SPX] Hourly Chart – Trading Volume

Charts in Attached PDF & Menotomyresearch.com

Choppy Day-to-Day Price Action Within Fairly Tight Range , Gap Down From 2,180 Forms Overhead Resistance

From a trading standpoint, the levels are fairly well-defined. Support forming just above 2,120, this represents the level where past rallies met resistance (Not Shown on chart). Resistance forming just below 2,180, which represents a gap down from all-time closing levels. A decisive breakout, north of 2,200 would be a vote of confidence in this market. On the other hand, a breakdown of current support would likely result in a retest of the June Pivot Low 2,000.
Market participants in the current environment could be best described as apprehensive. I’m a tentative buyer up here.