S&P Could Test 2100 On Bullish Divergence Pattern

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday July 13, 2015.

We’ve noted in the previous Market Outlook that: “the market had gone down far enough, long enough that traders are growing anxious for an oversold bounce.  This could help putting a short-term floor under the market.”  As anticipated, stocks closed higher Friday, recovering from a sharp selloff earlier in the week, amid hopes for resolution in Greece and stabilization in China market.  The Dow Jones Industrial Average closed up 211.79 points, or 1.21 percent, at 17,760.41.  The S&P 500 index closed up 25.31 points, or 1.23 percent, at 2,076.62.  The Nasdaq closed up 75.3 points, or 1.53 percent, at 4,997.70.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 15.72 percent to trade near 16.83.


Adeptus Health Inc. (ADPT) was a notable winner in Friday trading session, jumped 5.01% on strong volume to 98.04.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of ADPT suggests that the stock could climb above 111 in the coming days.  Just so that you know, initially profiled in our November 24, 2014 “Swing Trader BulletinADPT had gained about 215% 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 ADPT 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 – Adeptus Health Inc. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates ADPT as a Buy.  Over the past few days, ADPT has been basing sideways near the range top as it works off the overbought condition.  Money Flow measure held firmly above the zero line, suggesting there was little selling interest.  Friday’s bullish breakout had helped clear resistance at the 3-day falling trend line and the range top, signals resumption of the multi-month upswing.  So, it seems to us that this rally could carry ADPT up to 111-116, based on both of the 2004 high and 127.2% Fibonacci extension of the January to July upswing.

Immediate support is at the weekly pivot low, near 89.60.  A close below that level will wreck Friday’s bullish signal.

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.  Thanks to Friday’s bullish reversal, it looks like the bullish double bottom pattern now has a chance. Short-term momentum indicator had shifted higher from near oversold territory, suggesting further short-term gains likely.  Also noticing that the indicator had been diverged from price action over the past couple of days.  The S&P undercut the early June low while the indicator set a higher low.

What we want to see next is a sustain advance above the overhead resistance at the early July high of 2085, which will affirm the short-term buy signal that is in place per the short-term momentum indicator.  A move above 2085 could trigger acceleration toward the trend channel moving, average, just below 2100.

As for support, there is a strong band of support between 2044 and 2036, or the weekly pivot low and the bottom of its short-term trading range.  A failure to hold above that level will resume the late June downswing and a retest of the November 2014 breakout point near 2020 will follow shortly.  Below it, a more significant support lies at the February low, near 1980.

In summary, technically speaking, Friday’s bullish trading action had helped reversing the pace of price action, from negative to positive. This is bullish and suggested that the S&P has now embarked on a rally that should, at least, test 2100.

(By:Michelle Mai for Capital Essence)

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