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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday November 24, 2017.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, stocks closed lower Wednesday after Federal Reserve expresses concern about the impact of the market’s sharp rise on the economy in a summary of its previous meeting. For the day, the S&P fell 0.1 percent to 2,597.08. The Dow Jones industrial average fell 0.27 percent to finish at 23,526.18.  The Nasdaq composite added 0.07 percent to an all-time high of 6867.36.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.54 percent to close at 9.88.

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Oil prices remained near two-year highs as the shutdown of the Keystone pipeline and a drawdown in fuel inventories pointed to a tightening market, despite rising output.  Energy stocks caught a bid Wednesday that saw the Energy Select Sector SPDR Fund (XLE) rose 0.4 percent to 67.69, bringing its YTD loss to more than 10 percent, underperformed 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 XLE.

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 – Energy Select Sector SPDR Fund (daily)

Our “U.S. Market Trading Map” painted XLE bars in red (sell).  The ETF sold off after the late October rally ran out of steam near the 50% Fibonacci retracement of the 2016-2017 downswing.  The November correction found support near the prior low set in late October.  Last week’s rally pushed XLE up against the 50-day moving average.  That level roughly corresponds with the mid-November breakdown gap.  Wednesday’s bearish topping bar suggested that an impending trend reversal is underway.  A downside follow-though tomorrow will confirm this and a retest of the October low of 66.34 should be expected.  A close below that level will bring the August low of 61.80 into view.

XLE has resistance near 68. 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 retreated after recent rally ran out of steam near the important sentiment 2600 mark.  This week’s high made a bearish divergence as price made a higher high and RSI a lower high.  Adding to concerns is Money Flow measure, which 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.  These elements increased the likelihood of downside follow-through in the days ahead.  With this in mind, we’d look a trim positions into overbought strength.

Short-term trading range: 2585 to 2615.  S&P has support near 2585.  A close below that level has measured move to 2553, 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’s rally stalled near key price level. The index could signal a downward trajectory, depending on how it closes over the next few days.  Initial support is defined by the lower boundary of the pink band, around 2485.  If it closes below that level, the next leg is likely lower, and we’re looking at 2553, based on the trend channel moving average.

 

 

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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