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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday November 28, 2017.

We’ve noted in the previous Market Outlook that: “S&P turned indecisive near key technical resistance.  Our near-term technical bias on the index favors a short-term consolidation.”   As anticipated, S&P closed slightly lower Monday as strength in retailers offset weakness in energy stocks.  For the day, the bench mark gauge fell 0.04 percent to close at 2,601.42.  The Nasdaq composite declined 0.15 percent to finish the day at 6,878.52.  The Dow Jones industrial average rose 0.10 percent to close at 23,580.78.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.07 percent to close at 9.87.

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One of the more noteworthy developments in recent days has been the move in copper prices.  The metal sold off Monday amid concerns about health of the Chinese economy.  The Global X Copper Miners ETF (COPX) fell 2.08 percent to 25.44 Monday, bringing its YTD gains down to just over 27 percent, still 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 COPX.

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 – Global X Copper Miners ETF (daily)

Our “U.S. Market Trading Map” painted COPX bar in red (sell) – see area ‘A’ in the chart. After a strong run of outperforming, the ETF peaked in mid-October and formed a bearish pattern of lower lows and lower highs.  The mid-November rally tested the 2-conjoining resistance near 25.70.  Monday’s massive bearish engulfing bar is a clear indication of supply overwhelming demand.  Right now follow-through is the key.  A close below 25.20 tomorrow will confirm the bearish signal and a test of support at the 200-day moving average, just above 23.40, should be expected.

COPX has resistance just above 26. 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 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 consolidates near the important sentiment 2600 mark as market digested the overbought conditions.  The fact that the index managed to hold on to most of recent gains is pretty impressive.  However, last 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 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, momentum deteriorated as S&P struggled to get far pass 2600.  Monday’s weakness did not improve the posture of our short-to-intermediate indicators, which remain supportive of a pullback.   The longer the index stays near that level, the more vulnerable it is to lower prices.

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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