Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday June 3, 2014.
We’ve noted in the previous Market Outlook that: “the S&P is in a nice uptrend and as long as this rising trend remains intact, the path with least resistant is higher. As for strategy, as it was the case of late, setbacks have turned out to be buying opportunities so trader should consider buying into market dips.” As anticipated, stocks sold off in early Monday trading session after the ISM originally said its May manufacturing index fell to 53.2 from 54.9 a month earlier, before correcting it twice, once to 56 and a second time to 55.4. The S&P fell as much as 0.4% before reversing an earlier loss and closed near high, edged up 1.40 points to finish at 1,924.97. The Dow Jones Industrial Average ticked up 26.46 points to end at 16,743.63. Meanwhile, the NASDAQ declined 5.42 points, to finish at 4,237.20. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed up 1.58% to 11.58.
Smith & Wesson Holding Corp. (SWHC) was a notable winner in Monday trading session, jumped 2.64 percent to 16.30 – a fresh 52-week high. This is bullish from a technical perspective. In fact, as the chart below indicated, SWHC could climb up to test key technical resistance near 18 in the coming days. Just so that you know, initially profiled in our May 8, 2014 “Swing Trader Bulletin” SWHC had gained about 6% 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 SWHC 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 – Smith & Wesson Holding Corp. (daily)
As indicated in the above chart, our “U.S. Market ETF Trading Map” rates SWHC as a Buy. SWHC has been on a tear in recent days after the May correction tested and respected support at the trend channel moving average (as represents by the white line in the chart). Money Flow measure held mostly above the zero line throughout the correction indicating there was little selling interest. Monday’s bullish breakout had helped clear resistance at the range top, signaled a resumption of the February upswing that projects to the 127.2% Fibonacci extension near 17.50 but has an overshoot target just below 18, or the late 2007 breakdown point.
Immediate support is at last week’s breakout point, near 15.80. 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 Hold. The index continues drifting higher within the confines of the red band, or extreme overbought zone. While the overall technical backdrop remains bullish, buyers must be very careful about initiate new positions at this stage of the rally. With Monday’s gains, the S&P is about 18 points, or a little less than 1%, below key resistance at the upper edge of the red band. Technically speaking, a move above that level often marked significant market top so traders should keep it on the trading radar.
Momentum indicator shifted lower from overbought zone, suggesting the rally off the May low of 1862 is losing momentum. However, Money Flow measure still holds above the zero line, indicating a positive net demand for stocks. This could help putting a short-term floor under the market.
Immediate support is at the lower edge of the red band, currently at 1920. A close below it will trigger a broad-based selloff that targets the important sentiment 1900 mark.
In summary, the impressive rally off the May low of 1862 on the S&P 500 index looks overextended and at any point, the market could take a short-term breather. However, market’s internals and trading sentiments remain bullish so selloffs should be shallow and quick because sideline money will be trying to fight its way back into the market.
(By：Michelle Mai for Capital Essence)
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