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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday December 12, 2012.

Stocks finished in positive territory but off the session highs Tuesday, after Senate Majority Leader Harry Reid threw cold water on the ongoing “fiscal cliff” negotiations.  For the day, the Dow Jones Industrial Average rose 78.56 points, or 0.60 percent, to close at 13,248.44.  The S&P 500 climbed 9.29 points, or 0.65 percent, to finish at 1,427.84.  The NASDAQ, rallied 35.34 points, or 1.18 percent, to end at 3,022.30.  The CBOE Volatility Index, the widely considered the best gauge of fear in the market, fell 2.99 percent to 15.57.


Notably, Mueller Water Products Inc. (MWA) surged to new 52-week high on explosive volume, jumped 4.01% to 5.70.  This is bullish from a technical perspective.  In fact, as the chart below indicated, MWA could climb up to the test the 4-year high near 7.20 after the downward trend halted.  Just so that you know, initially profiled in November 13, 2012 “Swing Trader BulletinMWA had gained about 19% 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 MWA 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 – Mueller Water Products Inc. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates MWA as a Buy.  MWA has been trending lower in a short-term corrective mode after the November rally ran out of steam near 5.58.  Tuesday bullish breakout had helped clear the strong band of resistance between 5.58 and 5.67, or the range top resistance and the April 2010 high.  This is bullish and opened up for a test of the next level of resistance at January 2009 high near 7.20.  Money Flow measure strengthened the bulls’ case as it trended higher from above the zero line.

Buyers however, must be aware that MWA had traded outside its short-term trading range and into extreme overbought territory following recent advance so we’d be cautious against taking large position at this stage of a rally.

Support is at recent breakout point of 5.58.  Only a close below that level can wreck the near-term bullish 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 Buy.  Key technical development in Tuesday trading session was a clear break above the November high of 1424.  This is bullish and suggested that the S&P might have switched to a new upswing that projects to 1444 at minimum but has an overshot target of 1471.

Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure.  Momentum indicator is still pointing up, suggesting the path with least resistance remains higher.  This increases the probability for a rapid advance toward the next level of resistance at the lower edge of the pink band, currently at 1444.  This level is significant in charting terms.  It provided supporting floor in the late August and September pullbacks.  It also acted as resistance in the early October rebound.    This history indicated an important role in term of resistance so it should not be surprising to see the index correcting lower from that level.  Above it, a more significant resistance lies at the lower edge of the red band, currently at 1471.

As for support, there is a strong band of support between the 1424 and 1416 levels, or recent breakout point and the trend channel moving average.  Pullback that respects support at 1424 should offer lower risk buying opportunity.  Although not expected at this moment, a close below 1416, meanwhile, will invalidate Tuesday bullish signal and a trigger a massive selloff that target the lower edge of the green band, currently at 1362.

In summary, several key technical indicators suggest that the bulls are now holding the edge for a secondary upswing. The S&P may extend the multi-week rally before meeting strong resistance near 1444.

(By:Michelle Mai for Capital Essence)
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