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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday August 7, 2017.

Stocks closed higher Friday on better-than-expected employment data.  The Dow Jones industrial average rose 66.71 points to close at 22,092.81.  The S&P 500 gained 0.19 percent to close at 2,476.83.  The Nasdaq composite closed 0.18 percent higher at 6,351.56.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 3.93% to close at 10.03.

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Weight Watchers International Inc. (WTW) soared 25.12% to close at new 52-week high Friday after the New York-based company reported earnings that topped Wall Street expectations and raised its outlook for the full year.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of WTW suggests that the stock has embarked on a rally that should test 46 at minimum but has overshoot target above 55.  Just so that you know, initially profiled in our April 7, 2017 “Swing Trader BulletinWTW had gained more than 160% and remained well position.  Below is an update look at a trade in WTW.

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 – Weight Watchers International Inc. (daily)

Our “U.S. Market Trading Map” rates WTW as a Buy. The overall technical outlook remains Bullish.  Last changed August 4, 2017 from bearish. Over the past few days, WTW has been trending lower in a short-term corrective mode as it worked off overbought conditions.  The July correction found support at the trend channel moving average (as represents by the white line in the chart).  Friday’s rally pushed the stock above the July high, signified a bullish breakout.  Money Flow measure held mostly 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 test of the 127.2% Fibonacci extension, around 46.70.  A sustain advance above that level has measured move to 55.50, based on the 161.8% Fibonacci extension.

WTW has support near 37.  Short-term traders could use that level as the logical level to measure risk against.

Banks outperformed the market Friday following report that the U.S. economy added 209,000 jobs last month, according to the Labor Department, well above the expected gain of 183,000.  The SPDR S&P Bank ETF (KBE) rose 0.81 percent.  Now the question is whether the rally has more legs?  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 KBE.

Chart 1.2 – SPDR S&P Bank ETF (weekly)

Our “U.S. Market Trading Map” painted KBE bars in dark green (weak buy).  Over the past few weeks, KBE has been basing sideways using the 43 zone as support.  This is a bullish development, represented an orderly high-level consolidation period in the aftermath of the June breakout.  Money Flow measure held firmly above the zero line since the ETF reached an interim low in summer 2016, indicating there was little selling interest. KBE has resistance near 44.  A close above that level signifies a bullish breakout with upside target near 47, based on the March 2017 high.

KBE has support near 42.70. 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 to trade within the confines of the pink band.  The late July outside reversal bar signaled an impending trend shifted.  Momentum is not favorable over the near to intermediate term as a clear bearish divergence has been building between Money Flow measure and price.  Money Flow measure peaked in early July and has since trending lower as price ascending higher.  These elements suggested that a healthy correction could ensue over the short-to-intermediate term.

Short-term trading range: 2460 to 2485.  S&P has minor support near 2465.  Below it, a more significant support lies at 2460.  This creates a strong band of support between 2465 and 2460. A close below 2460 will break the consolidator pattern and has measured move down 2440-2400.  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, although the S&P remained confined to a range bounce trading pattern, the late July’s outside reversal bar indicated a possible trend break.  Traders should monitor any drops below 2460.  If that support gives way, a drop to the 2440-2400 zone is certainly possible.

 

(By:Michelle Mai for Capital Essence)

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