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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday November 22, 2017.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, stocks closed higher Tuesday as strength in tech lifted the broader market.  For the day, the S&P gained 0.7 percent to finish at 2,599.03. The Dow Jones industrial average added 0.69 percent to finish at 23,590.83.  The Nasdaq composite rose 1.1 percent to an all-time high of 6,862.48.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 8.64 percent to close at 9.73.


One of the more noteworthy developments in recent days has been the move in tech stocks.  Information technology was the best-performing sector in Tuesday session.  The Technology Select Sector ETF (XLK) rose 1 percent to reach levels not seen since 2000, bringing its YTD gains to nearly 33 percent, outperformed the S&P by a wide margin.  Now the question is whether rally has more legs?  Below is an update look at a trade in XLK.

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 – Technology Select Sector ETF (daily)

Our “U.S. Market Trading Map” painted XLK bar in green (buy).  The ETF rebounded nicely after recent pullback found support near the 20-period moving averages.  Tuesday’s rally pushed XLK above the prior high set in early November, signify a bullish breakout.  Upside follow-through tomorrow will confirm Thursday’s bullish breakout signal and open up for a test of the 127.2% Fibonacci extension, just below 67.

XLK has support near 63. 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 rebounded nicely after recent pullback found support near the lower boundary of the pink band.  This is a bullish development but let’s notice that momentum indicators are overbought and problematic.  Money Flow measure did not confirm Tuesday’s breakout as it still holds below the early November’s peak.  This is a clear indication of buyer’s fatigue, suggesting that the breakout might not sustain.  With this in mind, we’d look a trim positions into overbought strength.

Short-term trading range: 2580 to 2615.  S&P has support near 2580.  A close below that level has measured move to 2551, 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, while the overall technical backdrop remains bullish with the long-term trend pointing upward, daily chart of the S&P has now shown significant signs that momentum is waning.  Over the near to intermediate term the technical suggested that breakouts might not sustain.  With this in mind, we’d look a trim positions into overbought strength.



Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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