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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday August 2, 2017.

Stocks closed higher on Tuesday, the first trading day of August that saw the Dow Jones industrial average rose 72.80 points close at a record of 21,963.92.  The S&P added 0.24 percent to end at 2,476.35. The Nasdaq composite also climbed 0.23 percent to end at 6,362.94.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 1.66% to close at 10.09.

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Scientific Games Corporation (SGMS) jumped 3.10% on strong volume to 38.20.  SGMS shares have climbed more than 90 percent YTD and more than doubled in the last 12 months.  This is bullish from a technical perspective.  In fact, a closer look at the weekly chart of SGMS suggests that the stock has embarked on a rally that should test 63 at minimum.  Just so that you know, initially profiled in our July 11, 2017 “Swing Trader BulletinSGMS had gained about 153% and remained well position.  Below is an update look at a trade in SGMS.

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 – Scientific Games Corporation. (daily)

Our “U.S. Market Trading Map” rates SGMS as a Buy. The overall technical outlook remains Bullish.  Last changed July 10, 2017 from neutral. There is a distinct possibility that a bull flag formation is currently setting up in the daily chart of SGMS.  Money Flow measure held firmly above the zero line since the stock reached an interim low in late 2016, indicating there was little selling interest.  This is a positive development, supporting further upside follow-through and a retest of the 261.8% Fibonacci extension, just above 63.  Resistance stands in the way of continue rally is at the 161.8% Fibonacci extension, just above 41.

SGMS has support near 36.  Short-term traders could use that level as the logical level to measure risk against.

The headlines haven’t been great over recent days, yet high beta stocks are nearly back to its recent high.  The PowerShares S&P 500 High Beta ETF (SPHB) is about 2 percent below the intraday high set in late July.  According to our “U.S. Market Trading Map”, there could be more gains ahead for the ETF.  Below is an update look at a trade in SPHB.

Chart 1.2 – PowerShares S&P 500 High Beta ETF (weekly)

Our “U.S. Market Trading Map” painted SPHB bars in bright green (strong buy).  The first dominant feature on the chart is the rising trend starting early 2016.  The second dominant feature of the chart is the sideways consolidation between 35.70 and 38.80 since early 2017, which represented the digestion period.  The late July rally pushed SPHB up against the upper boundary of its multi-month trading range.  Money Flow measure held nearly all-time high, indicating a strong net demand.  This is a bullish development, supporting rapid advance above the July high of 38.83 and up to the next level of resistance at the 127.2% Fibonacci extension, just above 43.

SPHB has support near 37. 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”]

The big picture is pretty much the same. The S&P continues bouncing back and forth within a confines of the pink band.  The index trades in broad trading bands that define the trend behavior. The upswing was very rapid with some short-term consolidation near each of the significant support or resistance levels. These support and resistance levels also define the limits and barriers to any future rally and uptrend development.

Short-term trading range: 2460 to 2483.  S&P has support near 2460.  A close below 2460 will break the consolidator pattern and has measured move down 2439, based on the trend channel moving average.  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, we wouldn’t look too much into recent trading action as because it keeps the S&P within its short-term consolidation phase. Resistance is strong in the 2483 zone and upside momentum does not appear strong enough to generate a decisive breakout.  With this in in mind, we would consider taking down exposure into additional strength, which we think could take the S&P closer to the upper boundary of its short-term trading range before a significant pullback unfolds.

 

(By:Michelle Mai for Capital Essence)

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