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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday November 7, 2017.

We’ve noted in the previous Market Outlook that: “market could continue to drift higher as trading sentiment remains strong.”  As anticipated, major US equity indices closed higher Monday as stocks bounced hard off overnight weakness then extended gains throughout the day.  For the day, the Nasdaq and the S&P added 0.3 percent and 0.1 percent, to close at 6,786.44 and 2,591.13 respectively.  The Dow added 0.04 percent to close at 23,548.42.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.84 percent to close at 9.40.

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One of the more noteworthy developments in recent days has been the move in gold.  The metal jumped nearly one percent on Monday on geopolitical risks in its biggest one-day percentage gain since late September.  As such, the SPDR Gold Shares (GLD) rose 0.85 percent to 121.65.  Nevertheless, the ETF underperformed the broader market, up about 10 percent YTD while the S&P gained nearly 16 percent over the same period.  Now the question is whether Monday rally has more legs?  Below is an update look at a trade in 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 bar in green (buy).  After a strong run of outperformance since early July, GLD peaked in early September at 128.30 and rolled over.   The September correction found support near the 200-day moving average.  Monday’s massive reversal pushed the ETF above the 20-day moving average.  That level was significant when GLD fell below it in October.  Right now follow-through is the key.  A close above 121.73 tomorrow will confirm Monday’s bullish reversal signal and set the stage for a rapid rally toward 123.  A close below that level on a weekly basis has measured move to 128.

GLD has support near 120. 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.  Last changed October 30, 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”]

Despite overbought conditions, S&P continues drifting higher within the confines of the pink band.  From a momentum perspective a negative divergence exists on RSI, which peaked in mid-October and trending lower as prices ascending.  This bearish development suggested that risk is greater to the downside in the medium term.  With this in mind, we’d look a trim positions into overbought strength.

Short-term trading range: 2567 to 2608.  S&P has minor support near 2567.  A close below that level has measured move down 2525, based on the trend channel moving average.  The lower boundary of the red band, around 2608, represents key price level.  A close above that level often marked short-term market tops.  Traders should put it on the trading radar.

Long-term trading range: 2530 to 2630.  Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within this 100 points range.

Bottom line, while the overall technical backdrop remains bullish with the long-term trend pointing upward, daily chart of the S&P has shown significant signs that momentum is waning.  Over the near to intermediate term the technical suggested that breakouts will not sustain.

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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