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 Monday June 12, 2017.

We’ve noted in the previous Market Outlook that: “S&P remains in a consolidation phase that reflects an indecisive market.  While near-term risk is greater to the downside, the medium-term technical backdrop remains positive so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.”  As anticipated, stocks sold off sharply for most of Friday session that saw the S&P traded as low as 2,415.70 before buyers stepped in and pushed prices off the intraday low.  For the day, the bench mark gauge slipped 2.02 points, or 0.08 percent, to end at 2,431.77.  The Dow Jones industrial average rose 89.44 points, or 0.42 percent, to close at 21,271.97.  The Nasdaq fell 113.80 points, or 1.8 percent, to 6,207.92.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 5.31 percent to 10.70.

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Brunswick Corp (BC) was a notable winner Friday, surged 4.36 percent on strong volume to 60.79.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of BC suggests that the stock could climb above 67 in the coming days.  Just so that you know, initially profiled in our November 22, 2016 “Swing Trader BulletinBC had gained about 28% and remained well position.  Below is an update look at a trade in BC.

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.

Brunswick_20170609

Chart 1.1 – Brunswick Corp. (daily)

Our “U.S. Market Trading Map” rates BC as a Buy. The overall technical outlook shifted Bullish.  Last changed June 9, 2017 from neutral.  BC has been on a tear in recent days after the April correction retested and respected support at the bottom of its short-term trading range.  Friday’s advance pushed the stock above April-May falling trend line, signified a bullish reversal.  Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure.  This is a bullish development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, just above 67.  Resistance stands in the way of continue rally is at the March high, just below 62.

BC has support near 57.  Short-term traders could use that level as the logical level to measure risk against.

After a strong run of outperformance in late 2016, financial formed a multi-year high in early March and trended steadily lower. Last week’s outperformance indicated a bullish turnaround, according to our “U.S. Market Trading Map”.  Below is an update look at a trade in the Financial Select Sector SPDR ETF (XLF).

FinancialETF_20170609

Chart 1.2 – Financial Select Sector SPDR ETF (daily)

Our “U.S. Market Trading Map” painted XLF bar in bright green (strong buy).  Last week’s outperformance pushed XLF above the March falling trend line, signified a bullish breakout and upside reversal.  Money Flow measure trended higher from above the zero line, indicating a positive net demand.  This is a bullish development, supporting further upside follow-through and a retest of the March high of 25.30.

XLF has support near 23.50. Short-term traders could use that level as the logical level to measure risk against.

Sp500_CEM_20170609

Chart 1.3   – S&P 500 index (daily)

Short-term technical outlook remains bullish.  Last changed June 8, 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 trades in broad trading bands that define the trend behavior.  The band upper and lower boundaries define the limits and barriers to any future rally and uptrend development. Friday’s wild swing tested support and resistance at the upper and lower boundaries of the pink band.  In accordance to the Japanese candlestick pattern recognition, Friday’s spinning bar suggests that forces of supply and demand are nearing equilibrium and that a shift in the direction of the trend, which is down in this case, may be coming.

Short-term trading range: 2415 to 2444.  S&P has minor support near 2415.  Below it a more significant support lies at 2400.  This creates a strong band of support between 2415 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 2444, represents key price level.  A trade above that level indicates overbought conditions.

Long-term trading range: 2380 to 2480.  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, Friday’s spinning bar together with prolong overbought conditions suggested strongly that the S&P is in a process of building a significant market top. A close below the lower boundary of the pink band will put the bears into the driver side of the market and spell an end to the secondary upswing that dominated the markets since late 2016.

 

(By:Michelle Mai for Capital Essence)

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