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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday June 2, 2017.

We’ve noted in the previous Market Outlook that: “S&P pulled back to test support at recent breakout point after a test of resistance at the lower boundary of the red band was met with a new wave of selling interest.  In accordance to the Japanese candlestick pattern recognition, Wednesday’s bullish long tail is a clear indication of demand overwhelming supply.  This is a short-term positive development, increased the probability for at least an attempt to rally in the coming days.”  As anticipated, stocks closed higher Thursday as traders’ cheers the latest batch of economic data.  For the day, the S&P gained 18.26 points, or 0.76 percent, to end at 2,430.06.  The Dow Jones industrial average rose 135.53 points, or 0.65 percent, to close at 21,144.18.  The Nasdaq advanced 48.31 points, or 0.78 percent, to close at 6,246.83.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 5 percent to 9.89.

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Freshpet Inc. (FRPT) was a notable winner Thursday, soared 5.3 percent to 16 – a fresh 52-week high.  This is bullish from a technical perspective. In fact, a closer look at the daily chart of FRPT suggests that the stock could climb above 18 in the coming days.  Just so that you know, initially profiled in our March 23, 2017 “Swing Trader BulletinFRPT had gained about 47% and remained well position.  Below is an update look at a trade in FRPT.

The graphics below are from our “U.S. Market Trading Map”, show the near-term technical bias and trading ranges.  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.

Freshpet_20170601

Chart 1.1 – Freshpet Inc. (daily)

Our “U.S. Market Trading Map” rates FRPT as a Buy. The overall technical outlook remains Bullish.  Last changed April 25, 2017 from neutral.  FRPT has been on a tear in recent days following the late May breakout from the bullish flag pattern.  Thursday’s breakout pushed the stock above the 50% Fibonacci retracement, clearing an important hurdle based on Fibonacci levels. Money Flow measure held mostly above the zero line since the stock reached an interim low in late 2016, indicating there was little selling pressure.  This is a bullish development, supporting a rapid advance toward the next level of resistance at the 61.8% Fibonacci retracement, near 18.

FRPT has support near 14.50.  Short-term traders could use that level as the logical level to measure risk against.

The SPDR S&P Aerospace & Defense ETF (XAR) has been one of the steadiest “Trump trades”, made another 52-week high and YTD is up nearly 12%.  Other potential catalysts for aerospace ETFs include increased airline profitability and continued demand for aircraft models and technology.  And according to our “U.S. Market Trading Map”, there could be more gains ahead for the sector.  Below is an update look at a trade in XAR.

AerospaceDefenseETF_20170601

Chart 1.2 – SPDR S&P Aerospace & Defense ETF (daily)

Our “U.S. Market Trading Map” painted XAR bars in bright green (strong buy).  Over the past few days, XAR has been trending lower in a short-term corrective mode as it worked off overbought conditions.  The correction found support at recent breakout point.  Thursday’s breakout had pushed XAR above the late May falling trend line, signify a bullish breakout.  Money Flow measure trended higher from above the zero line, indicating a strong net demand.  This is a bullish development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension near 77.

XAR has support near 69.50. Short-term traders could use that level as the logical level to measure risk against.

Sp500_CEM_20170601

Chart 1.3   – S&P 500 index (daily)

Short-term technical outlook remains bullish.  Last changed May 19, 2017 from neutral (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

S&P broke above the late May high, clearing an important hurdle.  This is a bullish development but let’s notice that the rally has created short-term overbought conditions.  With Thursday’s gains, the S&P is about 5 points above the upper boundary of the red band.  Technically speaking, a trade above that level often precursor to a meaningful correction.  So, we’d be cautious against taking large position at this stage of a rally.

Short-term trading range: 2425 to 2450.  S&P has minor support near 2425. Below it, a more significant support lies at 2415.  This creates a strong band of support between 2425 and 2415.  If the index starts coming under 2415, it would imply more supply is coming into the market.  And the index might have to move to a much lower level to attract new buyers as a consequence. As for resistance, the upper boundary of the red band, near 2450, represents key price level.  A trade above that level often unsustainable.

Long-term trading range: 2350 to 2450.  Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within this 100 points range.

Bottom line, the fact that the S&P is overbought as it approached key price level that had been successful in repelling price action in the past suggested that upside gains could be limited.  As for strategy, traders should consider buying into market dips rather than chasing breakouts.

 

(By:Michelle Mai for Capital Essence)

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