S&P Approaches Critical Tipping Point

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday September 8, 2015.

We’ve noted in the previous Market Outlook that: “so far the upswing that started from September low of 1903 on the S&P has proved nothing as far as its staying power or as a possible major upswing.  That’s being said, until proven otherwise, current advance is a short-term oversold bounce, which should be over sooner rather than later.”   As anticipated, stocks closed more than 1 percent lower Friday ahead of a long weekend as uncertainty about the timing of a rate hike and Chinese economic growth triggered another round of broad-based selloff.  For the day, the Dow Jones Industrial Average closed down 272.38 points, or 1.66 percent, at 16,102.  The S&P 500 closed down 29.90 points, or 1.53 percent, at 1,921.23.  The Nasdaq closed down 49.58 points, or 1.05 percent, at 4,683.92.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 8.55% to 27.80.


Notably, Knoll Inc. (KNL) bucked the overall lackluster trading action, up 0.13% Friday to close at 23.11.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of KNL suggests that the stock could climb above 26 in the coming days.  Just so that you know, initially profiled in our January 23, 2015 “Swing Trader BulletinKNL had gained about 16% 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 KNL 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 – Knoll Inc. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates KNL as a Buy.   Over the past few days, KNL has been trending lower in a short-term corrective mode as it worked off the overbought condition.  The late August correction is testing support at the bottom of its short-term trading range.  That level roughly corresponds with the 50% Fibonacci retracement of the January to June 2015 upswing.

Friday’s bullish engulfing candlestick suggested that an important near-term low has been established.  Money Flow measure held firmly above the zero line throughout the correction suggested there was little selling pressure.  So, it seems to us that this rally could carry KNL up to the June high, just above 26.  A trade above 23.24 will confirm this.

Resistance stands in the way of continue rally is at the trend channel moving average (as represents by the white line in the chart), currently at 24.

Support is at the August low, just below 22.  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.  Friday’s downside follow through served as a confirmation and extension to Thursday’s bearish reversal signal.  Money Flow measure 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 much lower to attract new buyers.

Over the next few days, traders should monitor trading actions near the important sentiment 1900 mark. That level represents a critical tipping point.  A failure to hold above it will bring the August low of 1867 into view.  That level is significant in charting terms.  It roughly corresponds with the bottom of the S&P’ short-term trading range, currently at 1857.  As it was the case of late, a trade below that level often marked important market bottom so traders should put it on the trading radar.

As for resistance, there is a strong band of resistance between 1975 and 1993.  A close above 1993 will turn the short-term trend up and a retest of the July low of 2044 should follow shortly.

In summary, recent trading actions leaving the market in what looks to us like a back-and-forth consolidation of the late August massive selloff.  As the S&P approaches critical tipping point, we’re watching the next sell signal. The index could signal an extended downward trajectory, depending on how it closes over the next few days.   If the market is going to find a bottom in the near term, we want to see the S&P rebounds off 1900.

(By:Michelle Mai for Capital Essence)

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