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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday September 28, 2017.

Stocks closed higher Wednesday on speculation the GOP’s tax-cut plan will become law this year.  For the day, the S&P rose 0.4 percent to 2,507.04. The Dow Jones Industrial Average added 56 points for a 0.3 percent increase.  The NASDAQ Composite jumped 1.15 percent to 6,453.26.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 2.95% to close at 9.87.


Republicans unveiled sweeping changes to America’s tax code Wednesday in a proposal that dramatically lowers taxes on businesses and many households.  The small-cap Russell 2000 hit another all-time high of 1,487.95 and closed at a record amid optimism that smaller companies will benefit more than larger ones, as they will receive a greater post-tax bump in profits.  The iShares Russell 2000 ETF (IWM) surged nearly 2 percent to 147.44.  Nevertheless, IWM underperformed its larger peers as ETF has risen nearly 10 YTD while the S&P up about 12 percent.  Below is an update look at a trade in IWM.

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 – iShares Russell 2000 ETF (weekly)

Our “U.S. Market Trading Map” painted IWM bars in bright green (strong buy). IWM has been on a tear in recent weeks after the late September correction found support near the 23.6% Fibonacci retracement of the 2016-2017 upswing.  Money Flow measure held firmly above the zero line since the ETF reached an interim low in early 2016, indicating there was little selling pressure.  This week’s upside follow-through confirmed last week’s bullish breakout above the September’s high, signify resumption of the 2016 upswing.  Upside target is around 157, based on the 127.2% Fibonacci extension.

IWM has support near 143.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook shifted to bullish (strong buy).  Last changed September 27, 2017 from slightly bearish (weak sell) – see area ‘A’ in the chart.

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

Wednesday’s rally pushed the S&P above last week’s falling trend line, confirmed Monday’s bullish reversal signal and signify resumption of the August’s upswing.  Market is short-term overbought but momentum remains supportive. Additionally, Money Flow measure surged to the highest level since July, indicating an increase in buying pressure.  This certainly would argue that the near-term risk remains to the upside.

Short-term trading range: 2493 to 2515.  S&P has support near 2493.  A close below that level signals a short-term correction with downside target near 2471, based on the trend channel moving average.  The lower boundary of the red band, currently at 2515, represents key price level.  Technically speaking, a trade above that level is unsustainable.  Traders should put it on the trading radar.

Long-term trading range: 2470 to 2570.  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, S&P could continue to drift higher going into the end of the month as trading sentiment remains strong.  With that said, short-term overbought conditions can be sustained for a few days before a meaningful correction unfolds.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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