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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday November 21, 2017.

Stocks rose on Monday as traders bet tax cuts would keep the economic expansion going.  For the day, the S&P gained 0.1 percent to finish at 2,582.14. The Dow Jones industrial average added 0.31 percent to finish at 23,430.33.  The Nasdaq composite rose 0.1 percent to 6,790.71.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 6.82 percent to close at 10.65.


One of the more noteworthy developments in recent days has been the move in industrials.  The sector has been on fire since late 2016 boosted by strong corporate earnings, expectations of a U.S. tax code overhaul and improving global economic conditions.  The Industrial Select Sector SPDR ETF (XLI) rose 0.47 percent Monday, bringing its YTD gains up to 13.80 percent, slightly underperformed the S&P.  Now the question is whether Monday’s rally is a beginning of a new upswing or it’s a dead cat bounce?  Below is an update look at a trade in XLI.

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 – Industrial Select Sector SPDR ETF (daily)

Our “U.S. Market Trading Map” painted XLI bar in green (buy).  After a strong run of outperformance since early September, XLI peaked in late October and rolled over.  The correction found support near the 100-period moving averages.  Monday’s bullish reversal bar suggested that XLI might have switched to a new upswing.  An upside follow-through tomorrow will confirm this and trigger acceleration toward the 71.30-71.50 zone.  A close above 71.50 has measured move to above 73, based on the October high.

XLI has support near 70. 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.  Last changed November 16, 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 basing sideways near the lower boundary of the pink band.  That level was significant when the index briefly fell below it last week.   It’s now acting as support.  Money Flow measure is above the zero line, indicating a positive net demand for stocks.  This is a bullish development but momentum does not appear strong enough to generate major breakouts.  So it should not be surprising so see some backing and filling over the next couple of days.  Nevertheless, prior resistance has now turned into support.  Technically speaking, the path with least resistance remains higher as long as the S&P holds above 2578.  A close below it would see a massive pickup in volatility.

Short-term trading range: 2578 to 2615.  S&P has support just below 2580.  A close below that level has measured move to 2549, based on the trend channel moving average. Expect this support to hold, at least on a first test.  The lower boundary of the red band, around 2615, represents key price level.  A close above that level often marked short-term market top.

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.

In summary, S&P is in a holding pattern as traders wondered whether more gain is warranted given the massive advance over the past months. With Money Flow measure above the zero line, the path with least resistance remains higher.  On balance, we remain bullish on the S&P and looking to buy into market dips.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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