S&P Triangle Formation Suggests Downtrend Will Continue

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday September 9, 2015.

We’ve noted in the previous Market Outlook that: “recent trading actions leaving the market in what looks to us like a back-and-forth consolidation of the late August massive selloff…the S&P rebounds off 1900.”   As anticipated, stocks closed more than 2 percent higher Tuesday, rebounding after a long weekend from their second-worst week for the year.  For the day, the Dow Jones Industrial Average closed up 390.30 points, or 2.42 percent, at 16,492.68.  The S&P 500 closed up 48.17 points, or 2.51 percent, at 1,969.40.  The Nasdaq closed up 128.01 points, or 2.73 percent, at 4,811.93. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 10.43% to 24.90.


Tempur Sealy International Inc. (TPX) was a notable winner in Tuesday trading session, soared 9.38% to 78.48 – a new 52-week closing high.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of TPX suggests that the stock could climb above 87 in the coming days.  Just so that you know, initially profiled in our May 14, 2015 “Swing Trader BulletinTPX had gained about 33% 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 TPX 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 – Tempur Sealy International Inc. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates TPX as a Buy.   TPX has been on a tear in recent days after the August correction tested and respected support at the bottom of its short-term trading range.   Money Flow measure held firmly above the zero line since the stock reached an interim low in early February 2015, indicating there was little selling interest.  This is bullish and should continue to provide foundation for further advance.  So, it seems to us that this rally could carry TPX up to the 2012 high of 87.43.  Resistance stands in the way of continue rally is at the February 2012 breakdown point, near 83.

Support is near 71.  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.  Once again, the index rebounded nicely off the dark-green band, or extreme oversold zone.  Money Flow measure trended higher but still below the zero line, indicating a negative net demand for stocks.  This is bearish because it suggested that rallies could be short-lived because higher prices will likely attract more sellers.  So, traders should consider selling into counter-trend bounces.

Right now, the most important thing to look for is trading actions near 1975 and 1911, based on the upper and lower borders of the 2-week triangle pattern.  A sustain breakout above 1975 will break the consolidation pattern and trigger acceleration toward the trend channel moving average, currently at 2054.  A failure to hold above 1911 meanwhile, will resume the August downswing and a retest of the October 2014 low of 1820 should be expected.

In summary, there is a distinct possibility that a triangle pattern is currently setting up in the daily chart of the S&P 500 index.  This pattern typically favors a trend continuation, which is down in this case.  The index could signal an extended downward trajectory, depending on how it closes over the next few days.  We should know for sure over the next couple of days as to whether this technical setup will be confirmed and triggered or not.

(By:Michelle Mai for Capital Essence)

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