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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday July 27, 2017.

We’ve noted in the previous Market Outlook that: “the fact that market is short-term overbought as S&P poked its head into the level that had been successful in repelling price action in the past does not favor a sustain breakout.”  As anticipated, S&P closed flat at 2,477.83 after hit an intraday high in early Wednesday session.  The Dow Jones industrial average rose 97.58 points to close at 21,711.01.  The Nasdaq composite climbed 0.16 percent to 6,422.75 and also notched all-time highs.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.80% to close at 9.60.

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Air Transport Services Group Inc. (ATSG) jumped 2.49% to close at new 52-week high Wednesday.  This is bullish from a technical perspective.  In fact, a closer look at the weekly chart of ATSG suggests that the stock has embarked on a rally that should test 26.80 at minimum but has overshoot target above 30.  Just so that you know, initially profiled in our July 20, 2017 “Swing Trader BulletinATSG had gained about 7% and remained well position.  Below is an update look at a trade in ATSG.

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.

Chart 1.1 – Air Transport Services Group Inc. (daily)

Our “U.S. Market Trading Map” rates ATSG as a Buy. The overall technical outlook remains Bullish.  Last changed July 25 from neutral. Over the past few days, ATSG has been basing sideways near the trend channel moving average (as represents by the white line in the chart) as it worked off overbought conditions.  Wednesday’s rally pushed the stock above the June high, signified a bullish breakout.  Money Flow measure held firmly above the zero line throughout recent correction, indicating there was little selling interest.  This is a positive development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, around 26.80.  A sustain advance above that level has measured move to 30, based on the 161.8% Fibonacci extension.

ATSG has support near 23.  Short-term traders could use that level as the logical level to measure risk against.

Emerging markets caught a bit Wednesday on the back of the Federal Reserve’s decision to keep interest rates unchanged.  The iShares MSCI Emerging Markets ETF (EEM) climbed to new 52-week high, confirmed the mid-July breakout above the key technical levels.  Now the question is whether the rally has more legs?  Below is an update look at a trade in EEM.

Chart 1.2 – iShares MSCI Emerging Markets ETF (weekly)

Our “U.S. Market Trading Map” painted EEM bars in bright green (strong buy).  EEM has been on a tear in recent days following the mid-July bullish breakout above the 2007 falling trend line.  That level roughly corresponds with the 61.8% Fibonacci retracement of the 2007 down leg.  Money Flow measure held above the zero line since the ETF reached an interim low in late 2016, indicating there was little selling interest.  These elements suggested that the entire trend will eventually retrace.  Resistance stands in the way of continue rally is at the 2011 high, just above 50.  A sustain advance above that level has measured move to 55.77, based on the 2007 high.

EEM has support near 42. Short-term traders could use that level as the logical level to measure risk against.

Chart 1.3   – S&P 500 index (daily)

Short-term technical outlook remains bullish.  Last changed July 12, 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 continues basing sideways near the lower boundary of the red band.  As mentioned, a trade above that zone indicated extreme overbought conditions – a situation that often precursor to a meaningful correction.  Nevertheless, the fact that the S&P managed to hold on to most of recent gains despite short-term overbought condition is impressive.  This certainly would argue that the near-term risk remains to the upside. Perhaps the positive Money Flow measure is the best illustration of the bulls’ case.

Short-term trading range: 2457 to 2483.  S&P has minor support near 2465.  Below it, a more significant support lies at the lower boundary of the pink band, around 2457.  This creates a strong band of support between 2465 and 2457.  The lower boundary of the red band, around 2483, represents key price level.  A close above that level often marked short-term market tops.  Traders should put it on the trading radar.

Long-term trading range: 2400 to 2500.  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 S&P could continue to drift higher going into the end of the month as trading sentiment remains strong.  With that said, overbought conditions can be sustained for a few days, potentially allowing for a test of the important sentiment 2500 mark before a significant pullback unfolds.

 

(By:Michelle Mai for Capital Essence)

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