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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday July 31, 2017.

We’ve noted in the previous Market Outlook that: “the big picture remains the same. There is a consolidation within the confines of the pink band, which represents digestion period.”  As anticipated, stocks closed mixed Friday as traders digested a fresh batch of mixed earnings reports.  The S&P gave up 0.13 percent to close at 2,472.10.  The Dow Jones industrial average closed 33.76 points higher at 21,830.31.  The Nasdaq composite ended 0.1 percent lower at 6,374.68.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.79% to close at 10.29.

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Saia Inc. (SAIA) on Friday reported second-quarter reported second-quarter net income of $17.6 million.  The results topped Wall Street expectations.  Shares soared 5.60% to close at fresh 52-week high.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of SAIA suggests that the stock has embarked on a rally that should test 59.50 at minimum but has overshot target over 70.  Just so that you know, initially profiled in our June 28, 2017 “Swing Trader BulletinSAIA had gained about 12% and remained well position.  Below is an update look at a trade in SAIA.

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 – Saia Inc. (daily)

Our “U.S. Market Trading Map” rates SAIA as a Buy. The overall technical outlook remains Bullish.  Last changed June 26, 2017 from neutral. Over the past few days, SAIA has been basing sideways near the range top as it worked off overbought conditions.  Friday’s rally pushed the stock above the early July high, signified a bullish breakout.  Money Flow measure held firmly above the zero line since the stock reached an interim low in May, 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, 59.50.  A sustain advance above 59.50 has measured move to 70, based on the 161.8% Fibonacci extension.

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

After slipping more than 6% YTD, SPDR S&P Retail ETF (XRT) caught a bid last week, up 2.4%.  The ETF was benefitted from a GOP announcement that the border-adjustment tax (BAT) will not be included in the administrations tax reform plan which should help those retailers who manufacture their goods overseas.  Now the question is whether the rally has some legs?  Below is an update look at a trade in XRT.

Chart 1.2 – SPDR S&P Retail ETF (daily)

Our “U.S. Market Trading Map” painted XRT bars in bright green (strong buy).  After printed a fresh 52-week low in early July, XRT reversed and trended sharply higher.  The July low made a bullish divergence as price made a lower low and Money Flow measure a higher low.  Last week’s breakout cleared neckline resistance, suggesting that the June-July neckline double bottom pattern had resolved to a new upswing with target around 43, which we’ve calculated using the height of the pattern and projected it upward.  That level roughly corresponds with the 50% Fibonacci retracement of the 2016-2017 downswing.

XRT has support near 40.40. 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 retreated toward the lower boundary of the pink band after recent rally attempt ran out of steam near the lower boundary of the red band.  Last week’s high made a bearish divergence as price made a higher high and Money Flow measure a lower low.  This is a negative development, increasing the likelihood of downside follow-through in the days ahead.

Short-term trading range: 2460 to 2485.  S&P has minor support near 2460.  A close below 2460 has measured move down 2435, 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, S&P could signal a downward trajectory, depending on how it closes over the next few days.  Initial support is defined by the lower boundary of the pink band, around 2460.  If it closes below 2460, the next leg is likely lower, and we’re looking at 2435, based on the trend channel moving average.

 

(By:Michelle Mai for Capital Essence)

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