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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday September 29, 2017.

We’ve noted in the previous Market Outlook that: “S&P could continue to drift higher going into the end of the month as trading sentiment remains strong.”  As anticipated, stocks closed higher Thursday with the Dow Jones industrial average added 40 points to close at 22,381.20.  The S&P gained 3 points to a record close of 2,510.06.  The Nasdaq composite closed 0.2 points higher to 6453.45.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 3.24% to close at 9.55.

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One of the noteworthy developments in September has been the move in consumer staples.  After a strong run of outperformance in late 2016, the sector topped out in early June and trended steadily lower.  The Consumer Staples Select Sector SPDR ETF (XLP) down 1.3 percent MTD while the S&P rose 1.6 percent.  Now the question is will the sector turn around and catching up to the broader market?  Below is an update look at a trade in XLP.

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 – Consumer Staples Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLP bars in red (strong sell).  After peaking at 57.36 in early June, XLP rolled over and formed a trading range between 54 and 56.  Last week’s massive selloff pushed the ETF below the 2017 rising trend line, signify a bearish breakout.  Money Flow measure however, still above the zero line, indicating a positive net demand.  This could help putting a short-term floor under the ETF.  Right now follow-through is the key.  A close below 53.92 on a weekly basis will confirm the bearish signal and a retest of support at the late 2016 low, around 50, should be expected.

XLP has resistance near 54.50.  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 remains 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”]

S&P is heading for a retest of resistance at the lower boundary of the red band after breaking out from the one-week falling trend line.  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: 2495 to 2517.  S&P has support near 2495.  A close below that level signals a short-term correction with downside target near 2472, based on the trend channel moving average.  The lower boundary of the red band, currently at 2517, 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, after several failure attempts to push prices lower last week, the bears throw in the towel on Wednesday’s GOP’s tax-cut plan.  S&P will have an upward bias toward the end of the week but we expect resistance at the lower boundary of the red band to remains largely intact.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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