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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday November 27, 2017.

Stocks rose on Friday as traders placed bets on a strong holiday shopping season.  For the day, the S&P rose 0.2 percent to 2,602.42.  The Nasdaq composite climbed 0.3 percent to 6,889.16.  The Dow Jones industrial average rose 0.14 percent to finish at 23,557.99. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 2.13 percent to close at 9.67


One of the more noteworthy developments in recent days has been the move in Chinese stocks.  The KraneShares CSI China Internet ETF (KWEB) fell 1.29 percent to 60.53 Friday, bringing its YTD gains to more than 74 percent, outperformed the S&P by a wide margin.  Now the question is whether recent pullback is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in KWEB.

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 – KraneShares CSI China Internet ETF (daily)

Our “U.S. Market Trading Map” painted KWEB bar in red (sell). After a strong run of outperforming, the ETF peaked just above 61.  Last Friday’s selloff signaled a bearish reversal.  Right now follow-through is the key.  A downside follow-through this week will confirm the bearish signal and a test of support at the 50-day moving average, just above 58, should be expected.

KWEB has resistance near 61.50. 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 shifted to neutral.  Last changed November 24, 2017 from bullish (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

S&P moved up to test the resistance at the important sentiment 2600 mark.  In accordance to the Japanese candlestick pattern recognition, Friday narrow range (or neutral) bar indicates uncertainty – traders refuse to press hard one way or the other just because they are not very sure about the near-term direction.  Although a single bar does not form a trend so this is not a call for a top, rather it is a warning signal, a sign in which the market is telling us that it is ready for a pause.

Adding to concerns is Money Flow measure, which did not confirm last week’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 2555, 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 turned indecisive near key technical resistance.  Our near-term technical bias on the index favors a short-term consolidation.  A struggle to move significantly above key price level means that long-term buying pressure has finally been exhausted.  On balance, we remain near term neutral/negative for S&P as we believe market vulnerable to some downside retracement over the short-to-intermediate term.




Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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