Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday January 6, 2015.
Stocks fell sharply on Monday as the price of oil closed just above $50 a barrel, the lowest since April 2009, after a short visit below the psychological level during the session. The Dow Jones Industrial Average shed 331.34 points, or 1.9 percent, to 17,501.65. The S&P 500 declined 37.62 points, or 1.8 percent, to 2,020.58. The Nasdaq dropped 74.24 points, or 1.6 percent, to 4,652.57. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 12 percent to 19.92.
Notably, AMAG Pharmaceuticals Inc. (AMAG) bucked the overall trend, soared 5.16 % to 44.80 on Monday trading session – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of AMAG suggested that the stock could above 52 after breaking out from the so-called triangle pattern. Just so that you know, initially profiled in our August 20, 2014 “Swing Trader Bulletin” AMAG had gained about 116% and remained well position.
The graphics below are from our “U.S. Market ETF Trading Map”, show the near-term technical bias and trading ranges for AMAG 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 – AMAG Pharmaceuticals Inc. (daily)
As indicated in the above chart, our “U.S. Market ETF Trading Map” rates AMAG as a Buy. Over the past few days, AMAG has been coiling sideways as it worked off the overbought condition. Monday’s bullish breakout had helped clear resistance at the December falling trend line, suggesting that the 2-week triangle had resolved itself into a new upswing. Money Flow measure held above the zero line throughout the December congestion period, indicating there was little selling interest. Momentum indicator shifted higher from oversold zone, allowing additional upside probing. So, it seems to us that this rally could carry AMAG up to the next level of resistance at the 2010 high near 52.49.
Support is at the lower border of the triangle near 42.20. At this juncture, 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 Sell. Key technical development in Monday trading session was a clear break below the trend channel moving average. Over the next few days, traders should monitor trading behavior as the October rising trend line, currently at 2010, is tested as support. That level roughly corresponds with the upper edge of the green band. Money Flow measure trended lower. The indicator is on a verge of turning negative. Momentum indicator had reached extreme oversold zone following Monday massive selloff, suggesting further downside momentum is unsustainable without at least a short-term breather. This could help putting a short-term floor under the market.
Immediate resistant is at recent breakdown point near 2039. Above it, a more significant resistance lies at 2050. If the market is going to find a bottom in the near term, we want to see the S&P closes above that level.
In summary, despite Monday’s massive selloff, it still feels very premature to call the bottom here. The first level to watch is probably the 2010 level, where the October rising trend line comes it. Not only that the market is short-term oversold following recent decline, the overall technical backdrop remains bullish so it should not be surprising to see the index rebound from that level.
(By：Michelle Mai for Capital Essence)
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