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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday July 28, 2017.

Stocks closed mixed Thursday amid weakness in the large-cap tech stocks.  For the day, the Dow Jones industrial average added 85.54 points to close at 21,796.55.  The S&P slipped 0.1 percent to close at 2,475.42. The Nasdaq composite fell 0.6 percent to 6,382.19.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 5.31% to close at 10.11.


LendingTree Inc. (TREE) surged to new high Thursday, up 18.14% to 217.15.  This is bullish from a technical perspective.  In fact, a closer look at the weekly chart of TREE suggests that the stock has embarked on a rally that should test 267 at minimum.  Just so that you know, initially profiled in our July 6, 2017 “Swing Trader BulletinTREE had gained about 25% and remained well position.  Below is an update look at a trade in TREE.

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 – LendingTree Inc. (weekly)

Our “U.S. Market Trading Map” rates TREE as a Buy. The overall technical outlook remains Bullish.  Last changed January 2017 from neutral. Over the past few weeks, TREE has been basing sideways near the range top as it worked off overbought conditions.  Thursday’s rally pushed the stock above the June high, signified a bullish breakout.  Money Flow measure held firmly above the zero line since the stock reached an interim low in October 2016, indicating there was little selling interest.  This is a positive development, supporting further upside follow-through and a test of the 161.8% Fibonacci extension, around 267.  Resistance stands in the way of continue rally is at 220, based on the 127.2% Fibonacci extension.

TREE has support near 184.  Short-term traders could use that level as the logical level to measure risk against.

After the late May rally that saw the Transports gains more than 11% to its July 14 highs, the sector found itself in a short-term downward trend.  The iShares Transportation Average ETF (IYT) tumbled 3.1% Thursday following Credit Suisse’s negative reports on rails and defense.  Now the question is whether this is a pause that refresh or a beginning of a deep correction.  Below is an update look at a trade in IYT.

Chart 1.2 – iShares Transportation Average ETF (daily)

Our “U.S. Market Trading Map” painted IYT bars in red (strong sell).  After printed a fresh 52-week high in mid-July, IYT rolled over and didn’t look back.  Thursday’s declines pushed IYT below the June low, signified a bearish breakout.  Money Flow measure trended lower from below the zero line, reaching the lowest level since May.  This is a bearish development, indicating a negative net demand.  These elements suggested that IYT might have to move to a much lower level to attract new buyers.  Support is at the March-May lows, around 158.  If the sector is going to find a bottom in the near term, we want to see IYT stabilized around that level.

IYT has resistance near 167-169. 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 moved up to test the lower boundary of the red band.  As it was the case of late, a trade above that level often marked short-term market tops.  Adding to concerns are the lagging Money Flow measure and short-term overbought conditions.  These elements do not favor a sustain break to the upside.  While more backing and filling would not be a surprise, if the S&P could hold above 2460 then a move above 2500 would be easier to be sustained

Short-term trading range: 2460 to 2485.  S&P has minor support near 2460.  A close below 2460 has measured move down 2432, based on the trend channel moving average.  The lower boundary of the red band, around 2485, 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 big picture remains the same. There is a consolidation within the confines of the pink band, which represents digestion period.  While S&P’s 2500 will continue to act as price magnet, returned of short-term overbought conditions together with lagging Money Flow measure suggested that breakouts will not sustain.


(By:Michelle Mai for Capital Essence)

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