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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday August 2, 2012.

We’ve noted in the previous Market Outlook that: “based upon recent trading actions, the S&P had entered a short-term consolidation phase, which may last about 2 to 5 trading sessions.”  As anticipated, stocks closed lower in a seesaw session Wednesday as traders digest the latest FOMC announcement in which the Fed said it will continue to hold interest rates low through at least 2014 and continue Operation Twist through the end of the year.  For the day, the Dow Jones Industrial Average fell 32.55 points, or 0.25 percent, to close at 12,976.13.  The S&P 500 index gave up 4 points, or 0.29 percent, to end at 1,375.32.  The NASDAQ dropped 19.31 points, or 0.66 percent, to finish at 2,920.21.  The CBOE Volatility Index, the widely considered the best gauge of fear in the market, closed up 0.16 percent to 18.96.

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Despite the overall lackluster trading actions, shares of NCR Corp (NCR), a provider of hardware, software, and services solutions to the financial services, retail, and hospitality sectors, jumped 6.09% on explosive volume to 24.74 – a whisker below the 52-week high of 25 set in mid-July.   This is bullish from a technical perspective.  In fact, as the chart below indicated, NCR could climb above 28 to test the 4-year high should prices hurdle and sustain above key technical level.  Just so that you know, initially profiled in our July 12, 2012 “Swing Trader BulletinNCR had gained about 9% and remained well position.

The graphics below are from our “U.S. Market ETF Trading Map”, which show the near-term technical bias and trading ranges for NCR and the S&P 500 index.  As shown, the underlying is in a short-term bullish trend when the price bars are painted in green.  The underlying is in a short-term bearish trend when the price bars are painted in red.  The yellow bars identify period of neutral or sideways trading pattern.  Additionally, the light-blue shading represents the short-term trading range.  A move above or below that range is considered overbought (as represents by the red shading) or oversold (as represents by the dark-green shading).  Readings above or below the red and green shaded areas are considered extremely overbought or extremely oversold.

Chart 1.1 – NCR Corp (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates NCR as a Buy.  NCR moved up to test resistance at its range top after recent pullback found support at the trend channel moving average (as represents by the white line in the chart).  With an exception of a swift drop last week, Money Flow measure held firmly above the zero line throughout recent correction, indicating there was little selling interest.  Momentum indicator had trended higher from overbought zone, indicating an internal strength.  So, it seems to us that this rally could carry NCR above the range top resistance of 25 and up to the next level of resistance at the late July 2008 high of 28.09.

Support is at the trend channel moving average, currently at 22.38.  Only a close below that level can wreck the near-term bullish technical outlook.

Chart 1.2 – S&P 500 index (daily).

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates the S&P as a Hold.  Key technical development in Wednesday trading session was a clear break below support at last week’s breakout point of 1380.  Money Flow measure had trended lower from below the zero line, indicating an increase in selling pressure.  This is bearish and suggested that the S&P might have to move to a much lower level to attract buyers.

Immediate resistance is at the lower edge of the red band, currently at 1391.  Above it, a more significant resistance lies at 1417, or the range top resistance and the upper edge of the June rising channel.

As for support, the lower edge of the pink band, currently at 1365, represents a major price support.  As shown, it acted as supporting level and launching pad throughout the January to April 2012 rallies.  This history suggested an important role in term of support so it should not be surprising to see the S&P correcting higher from that level.

In summary, with Money Flow measure below the zero line, the balance of risk is largely to the downside.  Although seemingly vulnerable to further short-term weakness, expect the S&P attract buyers in any pullback to the lower edge of the pink band, currently at 1365.  A sharp rebound from that level will resume the June rising trend and open up for a test of the important sentiment 1400 mark.

(By:Michelle Mai for Capital Essence)
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Related posts:
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  2. Expect S&P To Draw In Buyers In Any Pullback To The Low-1340
  3. Short-term Condition Ripe For Some Pullback Consolidations

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