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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday December 11, 2017.

A stronger-than-expected jobs report pushed stocks higher Friday.  According to the Bureau of Labor Statistics, the U.S. economy added 228,000 jobs last month. Economists polled by Reuters expected a gain of 200,000.  For the day, the Dow Jones industrial average rose 0.49 percent to 24,329.16. The S&P gained 0.6 percent to close at 2,651.50.  The Nasdaq composite jumped 0.4 percent to finish at 6,840.08.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 5.71 percent to close at 9.58.

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One of the more noteworthy developments in recent days has been the move in emerging markets.  After a strong run of outperforming since early 2017, the group rolled over in late November.  The iShares MSCI Emerging Markets ETF (EEM) fell nearly 4 percent in early December.  Nevertheless, the ETF still outperforming the S&P, up more than 31 percent YTD.  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 EEM.

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 – iShares MSCI Emerging Markets ETF (daily)

Our “U.S. Market Trading Map” painted EEM bar in green (buy) – see area ‘A’ in the chart.  Looking at the one year daily chart of EEM we can see that the late November selloff pushed the ETF below key support at the 50-day moving average – the level that offered support since EEM broke out in early 2017.  Last week’s correction found support near 45.  Friday’s rebound pushed EEM back near the 50-day moving average.  This area is significant in charting terms.  There is no reason to turn particular bullish until this zone is eclipsed.   That’s said, a weekly close above 46.22 has measured move to 47-48.

EEM has support near 45. A failure to hold above that level will bring the 200-day moving average, just below 43, into view.  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 bullish.  Last changed December 8, 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 climbed above the lower boundary of the red band after recent pullback found support near the late November breakaway gap. Market is once again overbought following last week’s rebound.  Adding to concerns is the lagging Money Flow measure.   The indicator is flattening near zero line, indicating a lack of commitment. These elements do not favor a sustain breakout.  So it should not be surprise to see some backings and fillings as overbought conditions are absorbed.

Short-term trading range: 2600 to 2675.  Support is strong near the 2626-2600 area.  A failure to hold above 2600 suggests that most of the potential buyers at this level had already placed their bets.  The next batch of buyers typically sits at a much lower level.  The lower boundary of the red band, around 2640, represents key price level.  Above it, a more significant resistance lies at the range top, around 2675.  A close above that level often marked short-term market top.

Long-term trading range: 2580 to 2680.  Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within this 100-ish points range.

In summary, Friday’s upside reversal had helped putting the bulls back into the driver side of the market.  However, market internal does not favor a sustain breakout.  Our near-term technical bias favors some backings and fillings as overbought conditions are absorbed.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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