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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday June 6, 2017.

We’ve noted in the previous Market Outlook that: “market will have a tough time hold on to the gains given overbought conditions.”  As anticipated, stocks closed lower Monday that saw the S&P slipped 2.97 points, or 0.12 percent, to end at 2,436.10. The Dow Jones industrial average fell 22.25 points, or 0.1 percent, to close at 21,184.04.  The Nasdaq declined 10.11 points, or 0.16 percent, to close at 6,295.68.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 3.28 percent to 10.07.

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Some of the themes seen through the first few months of 2017 have continued Monday, the Technology Select Sector SPDR ETF (XLK) has handily outperformed, rose 0.09% to 57.24.  According to our “U.S. Market Trading Map”, there could be more gains ahead for the ETF.  Below is an update look at a trade in XLK.

TechnologyETF_20170605

Chart 1.1 – Technology Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLK bars in bright green (strong buy).  XLK has been on a tear in recent days following the late April breakout.  The rally pushed XLK up against key technical level at the 127.2% Fibonacci extension, just below 58.  Money Flow measure held firmly above the zero line since the ETF reached an interim low in early 2016, indicating a positive net demand.  This is a bullish development, suggesting the resistance might not hold for long.  A sustain breakout above 58 has measured move to 63, based on the 161.8% Fibonacci extension.

XLK has minor support near 55. Short-term traders could use that level as the logical level to measure risk against.

Sp500_CEM_20170605

Chart 1.2   – 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 moved down to test support at the lower boundary of the red band after breaking above that level last week.  Money Flow measure is still above the zero line, suggesting the bulls were much more aggressive as prices rallied than bears were as prices dropped and that net demand was strong.  In fact, all brief pullbacks since the last November have been met with aggressive wave of buying interest.   This is a bullish development, suggesting the path with least resistance is higher.  The market however, is overbought following recent rally so we’d buy into market dips rather than chasing breakouts.

Short-term trading range: 2433 to 2460.  S&P has minor support near 2433. If the index starts coming under that level, it would imply more supply is coming into the market.  And S&P 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 2460, 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, S&P shifted into a holding pattern as traders wonders whether more gain is warranted given the massive advance over the past months.  On balance, we remain bullish on the S&P and looking to buy into market dips.

 

(By:Michelle Mai for Capital Essence)

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