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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday October 27, 2017.

Stocks closed higher on Thursday as traders’ cheers a fresh batch of better-than-expected earnings reports.  For the day, the Dow Jones industrial average rose 0.31 percent to finish at 23,400.86.  The S&P gained 0.13 percent to finish at 2,560.40. The Nasdaq composite fell 0.1 percent to 6,556.77.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 0.62% to close at 11.30.

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One of the more noteworthy developments in recent days has been the move in US dollar.  The greenback continued its gain against the Euro after the European Central Bank (ECB) announced changes to its EQE program, largely in line with expectations, by extending it nine months into September 2018 while reducing monthly purchase by 50% to €30B.  The PowerShares DB US Dollar Index Bullish Fund (UUP) rose 1.07 percent to 24.62 – the highest level since July 2017.  Now the question is whether the rally has more legs? Below is an update look at a trade in UUP.

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 – PowerShares DB US Dollar Index Bullish Fund (daily)

Our “U.S. Market Trading Map” painted UUP bars in green (buy).  UUP has been on a tear in recent days after the early October correction found support at the 50-day moving average.  Thursday’s rally pushed the ETF above the 24.40 resistance level.  This resistance represents the neckline of a three month inverse head & shoulder pattern.  This is a bullish development, opened up for a test of the 200-day moving average, around 25.

UUP has support near 24.40.  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 neutral (with bearish bias).  Last changed October 26, 2017 from bearish – see area ‘A’ in the chart.

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

S&P rebounded nicely after recent pullback found support at the lower boundary of the pink band.  Money Flow measure trended higher from above the zero line, suggesting that the bulls were much more aggressive as price rallied than bears were as it declined and that net demand was very strong.  This is a positive development but let’s notice that despite Wednesday’s selloff, marked is still in pretty much overbought so it should not be surprise to see further consolidation as overbought conditions are absorbed.

Short-term trading range: 2550 to 2595.  S&P has support near 2550.  A close below that level has measured move to near 2500.  The weekly pivot high of 2578 represents key resistance.  Above it, a more significant resistance lies at the lower boundary of the red band, currently at 2595.  This creates a strong band of resistance between 2578-2595.  Technically speaking, a trade above 2595 is unsustainable.  Traders should put it on the trading radar.

Long-term trading range: 2500 to 2600.  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, it is possible that the S&P is trapped within narrow trading range as we’re heading into the window dressing period.  Short-term traders could play the range. However, markets are volatile and tight stops are advisable.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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