Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.

 

Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday June 8, 2017.

We’ve noted in the previous Market Outlook that: “S&P shifted into short-term consolidation mode.  The index could signal an extended downward trajectory, depending on how it closes over the next few days.  The medium-term technical backdrop however, remains bullish so buying into short-term market dips still the most profitable strategy.”  As anticipated, stocks closed higher Wednesday, regained some of recent loss, as traders hoped the testimony from former FBI chief James Comey will be less damaging to Trump than previously feared.  For the day, the Dow Jones industrial average rose 37.46 points, or 0.18 percent, to close at 21,173.69.  The S&P gained 3.81 points, or 0.16 percent, to end at 2,433.14.  The Nasdaq advanced 22.32 points, or 0.36 percent, to close at 6,297.38.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.57 percent to 10.39.

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Take Two Interactive Software Inc. (TTWO) was a notable winner Wednesday, jumped 2.72 percent to 79.77 – a fresh all-time high.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of TTWO suggests that the stock could climb above 83 in the coming days.  Just so that you know, initially profiled in our November 14, 2016 “Swing Trader BulletinTTWO had gained about 68% and remained well position.  Below is an update look at a trade in TTWO.

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.

TakeTwo_20170607

Chart 1.1 – Take Two Interactive Software Inc. (weekly)

Our “U.S. Market Trading Map” rates TTWO as a Buy. The overall technical outlook remains Bullish.  Last changed February 3, 2017 from neutral.  Over the past few days, TTWO has been basing sideways near the range top as it worked off overbought conditions.  Wednesday’s advance pushed the stock above the late May high, signified a bullish breakout.  Flow measure held firmly above the zero line since early 2017, indicating there was little selling pressure.  This is a bullish development, supporting further upside follow-through and a test of the 161.8% Fibonacci extension, just above 83.

TTWO has support near 75.  Short-term traders could use that level as the logical level to measure risk against.

The Energy Select Sector SPDR ETF (XLE) made its 52-week high in late 2016 at 78.45.  That level marked the end of the 2016 rally, which retraced about 50% of the 2014 downswing. XLE has been negative month-over-month in 2017, down 13.64% year-to-date.  According to our “U.S. Market Trading Map”, there could be more pains ahead for the ETF.  Below is an update look at a trade in XLE.

EnergyETF_20170607

Chart 1.2 – Energy Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLE bars in red (strong sell).  XLE had been trending lower over the past few months after the 2016 rally found resistance at the 50% Fibonacci retracement of the 2014 downswing. Last week’s decline broke support at the early May low, signified a bearish breakout.  Money Flow measure held below the zero line since early February, indicating a negative net demand.  This is a bearish development, supporting further downside follow-through and a retest of the 2016 low near 50.

XLE has resistance near 69. Short-term traders could use that level as the logical level to measure risk against.

Sp500_CEM_20170607

Chart 1.3   – S&P 500 index (daily)

Short-term technical outlook remains neutral.  Last changed June 6, 2017 from bullish (see area ‘A’ in the chart).

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

The big picture pretty much the same. The S&P continues drifting sideways below key resistance level.  Money Flow measure still holds above the zero line, indicating a positive net demand.  This is a bullish development, suggesting the path with least resistance remains higher so it should not be surprising to see the index regroup and rebound from near 2400.

Short-term trading range: 2418 to 2435.  S&P has minor support near 2418.  Below it a more significant support lies at 2400.  This creates a strong band of support between 2418 and 2400. If the index starts coming under 2400, 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 lower boundary of the red band, near 2435, represents key price level.  A trade above that level indicates overbought conditions.

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, Wednesday’s rally attempt did not improve the posture of our short-term indicators, which remain supportive of further pullback.  S&P has 2418 to trade against.  If that were to break, we could see 2400 next.

 

(By:Michelle Mai for Capital Essence)

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