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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday October 10, 2017.

Stocks closed lower on Monday as traders positioned for the start of earnings season.  For the day, the Dow Jones industrial average fell 0.06 percent to end at 22,761.07.  The S&P slipped 0.2 percent to 2,544.73.  The Nasdaq composite fell 0.15 percent to end at 6.579.73.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 7.05% to close at 10.33.

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Gold prices inched up to their highest in more than a week on Monday amid heightened geological tensions.  The SPDR Gold Shares (GLD) rose 0.82 percent to 122.08.  The ETF has risen more than 11 percent YTD, trailing the S&P by about 2 percent.  Monday’s rally indicated a bullish turnaround, according to our “U.S. Market Trading Map”.  Below is an update look at a trade in the GLD.

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 – SPDR Gold Shares (daily)

Our “U.S. Market Trading Map” painted GLD bars in green (buy).  After a strong run of outperformance in early July, GLD formed an important high in early September and trended steadily lower. The correction found support near the 200-day moving average.  Monday’s massive rally signified a bullish breakout and upside reversal.  This is a bullish development, supporting further upside follow-through and a test of the 2-conjoining resistance near 123.  A sustain advance above that level has measured move to 128.30, based on the early September highs.

GLD has support just below 119.  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 October 5, 2017 from neutral (with bearish bias y) – 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 basing sideways the lower boundary of the red band as support.  The fact that the S&P managed to hold on to most of the September gains despite overbought conditions indicated an internal strength.  This increases the probability that the index will breakout from the narrow trading range as soon as it works off the excessive optimism.  Perhaps the positive Money Flow measure is the best illustration of the bulls’ case.

Short-term trading range: 2540 to 2580.  S&P has support near 2540.  A close below that level signals a short-term correction with downside target near 2500.  The upper boundary of the red band, currently at 2580, 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, the fact that the S&P managed to hold on to the September’s massive gains in the face overbought conditions suggested that the bulls are holding an edge for a short-term corrective mode, which is taking place within a context of a medium-term uptrend.  Over the next couple of days, traders should monitor any move above the recent high of 2552.  If that resistance gives way, a rapid advance toward the range top is certainly possible.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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