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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday August 9, 2017.

We’ve noted in the previous Market Outlook that: “although the S&P remained confined to a range bounce trading pattern, the late July’s outside reversal bar indicated a possible trend break.”  As anticipated, stocks traded higher in early Tuesday session that saw the S&P briefly broke above previous intraday high of 2,484.04 before sellers stepped in and pushed prices lower. For the day, the bench mark gauge fell 0.24 percent to close at 2,474.92.  The Dow Jones industrial average gave up 0.15% to close at 22,085.34.  The Nasdaq composite slipped 0.21 percent to close at 6,370.46.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 10.37% to close at 10.96.

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Cutera Inc. (CUTR) soared 21.01% Tuesday after the company reported a better-than-expected second-quarter net income.  CUTR shares are more than doubling in the last 12 months.  This is bullish from a technical perspective.  In fact, a closer look at the weekly chart of CUTR suggests that the stock has embarked on a rally that should test 34.50 at minimum but has overshoot target above 41.  Just so that you know, initially profiled in our March 17, 2017 “Swing Trader BulletinCUTR had gained about 55% and remained well position.  Below is an update look at a trade in CUTR.

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 – Cutera Inc. (weekly)

Our “U.S. Market Trading Map” rates CUTR as a Buy. The overall technical outlook remains Bullish.  Last changed October 2016 from neutral. Over the past few weeks, CUTR has been trending lower in a short-term corrective mode as it worked off overbought conditions.  The late June correction found support near the 23.6% Fibonacci retracement of the 2016-2017 upswing.  Tuesday’s massive rally pushed the stock above the June high, signified a bullish breakout.  Money Flow measure held mostly above the zero line since the stock reached an interim low in summer 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 34.50.  A sustain advance above that level has measured move to above 41, based on the 161.8% Fibonacci extension.

CUTR has support near 29.  Short-term traders could use that level as the logical level to measure risk against.

After bottoming in early August, the US dollar reversed its bearish head and trended higher amid a fresh batch of better-than-expected economic data.  The US dollar plays an important role in the material sector. A stronger dollar is bad for the material sector because it hampers the exports of the material sector, while a weak dollar is a good sign for materials stocks.  The PowerShares DB US Dollar Index Trust (UUP) fell 8.3% while the Materials Select Sector SPDR Fund (XLB) rose 9% YTD.  Below is an update look at a trade in XLB.

Chart 1.2 – Materials Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLB bars in yellow (neutral).  After a strong run of outperformance, XLB printed an important high in early August and trended lower.  Money Flow measure held firmly above the zero line since the ETF reached an interim low in early 2016, indicating there was little selling interest. This is a bullish development, suggesting that recent weakness is merely an orderly high-level consolidation period in the aftermath of the massive post-election rally.

XLB has resistance just below 56.  A close above that level signifies a bullish breakout with upside target near 59, based on the 127.2% Fibonacci extension.

XLB has support near 53.50. 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 remains the same, there is a consolidation within the confines of the pink band.  In accordance to the Japanese candlestick pattern recognition, Tuesday’s bearish topping tail candlestick is a clear indication of supply overwhelming demand.  Adding to concerns are the lagging Money Flow measure.  As shown, 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 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 2490.  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 2490, 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.

In summary, Tuesday’s bearish topping tail candlestick together with the lagging Money Flow measure suggested that an important near-term high has been established and the S&P is entering a much needed pause.  This increases the probability that the late day sell-off will momentum but a much deeper slide is needed to erase the short-term upward trajectory.

 

(By:Michelle Mai for Capital Essence)

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