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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday August 11, 2017.

Stocks tumbled out of gate Thursday amid growing U.S.-North Korea geopolitical tensions.  The Dow Jones industrial average fell 0.93 percent, or 204.69 points, to close at 21,844.01.  The S&P declined 1.45 percent, or 35.81 points, to end at 2,438.21 and the Nasdaq dropped 2.13 percent, or 135.46 points, to finish at 6,216.87.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, soared 44.37% to close at 16.04.

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Safe haven stocks caught a bid Thursday on the back of the U.S.-North Korea geopolitical tensions. Royal Gold Inc. (RGLD) jumped 2.12% on strong volume to 86.74 – a whisker below the 52-week high set earlier this month.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of RGLD suggests that the stock has embarked on a rally that should test 104 at minimum.  Just so that you know, initially profiled in our May 11, 2016 “Swing Trader BulletinRGLD had gained about 51% and remained well position.  Below is an update look at a trade in RGLD.

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 – Royal Gold Inc. (daily)

Our “U.S. Market Trading Map” rates RGLD as a Buy. The overall technical outlook remains Bullish.  Last changed July 14, 2017 from neutral.  Thursday’s upside follow-through confirmed Wednesday’s bullish breakout above the early August falling trend line, signify resumption of the major upswing that has been in place since early 2016.  Money Flow measure held mostly above the zero line since the stock reached an interim low in early March, indicating there was little selling pressure.  This is a positive development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, around 104.

RGLD has support near 85.  Short-term traders could use that level as the logical level to measure risk against.

With the major equity indices are lower across the board over apparent concerns of conflict with North Korea, one asset that may provide an indication on the extent of the current pullback is the safe haven gold. Gold futures jumped about 1 percent and hit their highest level in two months. Below is an update look at a trade in SPDR Gold ETF (GLD).

Chart 1.2 – SPDR Gold ETF (daily)

Our “U.S. Market Trading Map” painted GLD bars in bright green (strong buy).  The ETF is widely viewed as the ultimate barometer of sentiment and it is currently testing the strong band of resistance between 123 and 125, or the prior highs set earlier this year and the early November 2016 high.  Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure.  A sustain advance above 125 signals a bigger correction is on hand for stocks and triggers acceleration toward the summer 2016 high around 131.

OIH has support near 120.50. 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 shifted to bearish.  Last changed August 10, 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”]

Key technical development in Thursday session was a clear break below the trend channel moving average.  In fact, currently trading pattern is very similar to the mid-May (see area ‘B’ in the chart).  As shown, after fell briefly below the trend channel moving average, the S&P formed a significant short-term low of 2352 on May 18 and traded higher throughout the following weeks.  With that said, if history is any guidance then traders should expect at least an attempt to rally toward immediate resistance at trend channel moving average, currently at 2448.  However, Money Flow measure is not favorable over the near to intermediate term.  After peaking in mid-July, the indicator has been trending lower as prices ascending higher.  This bearish development could put a cap on any rally attempts.

Short-term trading range: 2427 to 2448.  S&P has minor support near 2427.  Below it, a more significant support lies at 2400.  This creates a strong band of support between 2427 and 2400.  The trend channel moving average, around 2448, represents key price level.  A close above that level has measured move to 2460.

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, Thursday’s bearish breakdown signify an imminent major trend shift.  While there seems to be room to go lower, the selloff is overextended from a short-term perspective so it’ll be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakdowns are decisive.

 

(By:Michelle Mai for Capital Essence)

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