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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday October 30, 2017.

Stocks closed higher on Friday as traders’ cheers a fresh batch of better-than-expected earnings reports.  For the day, the Dow Jones industrial average rose 0.14 percent to finish at 23,434.19.  The S&P gained 0.81 percent to finish at 2,581.07. The Nasdaq composite surged 2.2 percent to 6,701.25.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 13.27% to close at 9.80.

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One of the more noteworthy developments in recent days has been the move in energy prices.  Crude oil closed at the highest level since February 28, up $1.26, or 2.4 percent, at $53.90, after Saudi Arabia and Russia declared their support for extending a global deal to cut oil supplies for another nine months.  The SPDR S&P Oil & Gas Exploration & Production ETF (XOP) soared 2.93 percent to 33.37.  Now the question is whether the rally has more legs? Below is an update look at a trade in XOP.

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 S&P Oil & Gas Exploration & Production ETF (daily)

Our “U.S. Market Trading Map” painted XOP bar in green (buy).  Over the past few weeks, XOP has been trending lower in a short-term corrective mode as it worked off overbought conditions.  The late September correction tested support at the 50-day moving average.  That level was significant when the ETF climbed above it in early September.  Friday’s massive bullish engulfing indicated that an important near-term low has been established and XOP is in an early stage of a new upswing.  The September high of 34.69 represents key resistance.  A close above that level has measured move to 37.

XOP has support near 32.  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 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 is heading toward resistance at the lower boundary of the red band after recent pullback found support at the lower boundary of the pink band.  Friday’s upside follow-through confirmed Wednesday’s bullish reversal signal and pushed the index above the all-time high set last week.  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 the return of overbought conditions on the daily chart, which will give the bulls more pressure than they have already had.

Short-term trading range: 2550 to 2597.  S&P has support near 2550.  A close below that level has measured move to near 2500.  The lower boundary of the red band, currently at 2597. Represents key resistance.  Technically speaking, a trade above that level 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, S&P cleared key resistance last week.  While there seems to be room to go higher, traders must be mindful that the return of overbought conditions on the daily chart.  While overbought condition is normal during a pro-long uptrend, it’s suggested that upside momentum might not sustain without at least a short-term breather.  With this in mind we’d consider increase exposure into short-term dips rather than chasing breakouts.

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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