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

We’ve noted in the previous Market Outlook that: ”although overbought condition is keeping buyers at bay, S&P’s important sentiment 2700 mark will continue to act as price magnet.  This could help putting a short-term floor under the market.  As for strategy, traders should consider purchase stocks during short-term dips in the market and stay bullish.”  Stocks closed slightly higher Wednesday in a thin holiday trading week.  For the day, the Dow Jones industrial average rose 0.11 percent to close at 24,774.30. The S&P 0.08 percent higher at 2,682.62.  The Nasdaq composite closed 0.04 percent higher at 6,939.34.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.15 percent to close at 10.47.


One of the more noteworthy developments in recent days has been the move in copper.  Copper futures leapt to three-and-a-half-year peaks on Wednesday after a jump in China’s imports of the metal in November boosted expectations of stronger demand from the top consumer.  The Global X Copper Miners ETF (COPX) jumped 2.16 percent to 27.36, bringing its YTD gains to nearly 40 percent, outperformed the S&P by a wide margin.  Now the question is whether the rally has more legs?  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 (weekly)

Our “U.S. Market Trading Map” painted COPX bar in green (buy) – see area ‘A’ in the chart. COPX rebounded nicely after the early October pullback found support near the 50-week moving average.  That level roughly corresponds with the 61.8% Fibonacci retracement of the 2014 to 2016 downswing.  This week’s rally pushed the ETF up against the upper boundary of the 4-month sideways trading range.  The fact that COPX had retraced more than 61.8% of its prior downswing, suggested that the entire trend will eventually retrace. So, it seems to us that this rally could carry the ETF above the September-October highs and up to the next level of resistance at the 2014 high, just above 33.

COPX has support near just below 24. 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 bearish.  Last changed December 27, 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 continues basing sideways as it works off overbought conditions. In fact, current trading pattern is similar to the July-August and October-November 2017 in which the S&P breaking out following prolong congestion period.  What different this time is that we’re seeing weak breadth in the market.  As you can see, Money Flow measure is much weaker than it was back in the late summer and autumn, indicating buying pressure had eased.

Nevertheless, the fact that the S&P managed to hold on to most of the November’s massive gains indicating an internal strength.  If the index could hold above 2660 this week then a move above 2700 would be easier to achieve.

Short-term trading range: 2660 to 2700.  Support is strong near the 2660 area.  A failure to hold above that level 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, around 2600.  The important sentiment 2700 mark represented key resistance.  A close above that level would trigger acceleration toward the range top, around 2740.

Long-term trading range: 2600 to 2700.  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, based upon recent trading actions, S&P is in a midst of a multi-week consolidation phase. If the index could hold above 2660 this week then a move above 2700 would be easier to achieve.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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