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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday January 3, 2018.

We’ve noted in the previous Market Outlook that: “S&P remains in a consolidation phase that reflects an indecisive market.  While overbought condition is likely keeping buyers at bay, support is strong near 2660.  As for strategy, pullback will present a buying opportunity, while selling into strength may not be the best strategy in a market considered likely to bounce back.”  As anticipated, stocks kicked off the new year on a high note on Tuesday, regained all of last week’s lost and some more to close at new highs.  The S&P gained 0.8 percent to close at 2,695.79.  The Nasdaq composite advanced 1.5 percent to 7,006.90.  The Dow Jones industrial average rose 0.42 percent to finish at 24,824.01.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 11.50 percent to close at 9.77.


Chinese markets are starting off 2018 with a bang.  Tech-related ETFs were leading the charge Tuesday with the KraneShares CSI China Internet ETF (KWEB) up 4.4 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 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 (weekly)

Our “U.S. Market Trading Map” painted KWEB bars in green (buy) – see area ‘A’ in the chart. KWEB rebounded nicely after the late 2017 pullback found support near the 23.6% Fibonacci retracement of the 2017 upswing. That level roughly corresponds with the 20-week moving average.  This week upside follow-through confirmed last week’s bullish reversal signal.  This is a positive development, supporting a rapid advance above the late 2017 high of 61.59 and up to the next level of resistance at the 127.2% Fibonacci extension near 69.

KWEB has support near 58. 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 January 2, 2018 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 rebounded nicely after last week’s retreated found support just above the lower boundary of the pink band.  Tuesday’s upside breakout had helped clear resistance at the late December falling trend line, signify a bullish reversal.  This is a short-term positive development, supporting further upside follow-through and a test of the more important resistance in the 2700 zone. Traders however must be aware that Money Flow measure is slightly below the zero line, indicating a weak net demand for stocks. It will be important to monitor the breakout and retreat behaviors over the next few days to determine whether breakouts are decisive.

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 2750.

Long-term trading range: 2620 to 2730.  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, S&P broke out from the late December falling trend but it will be important to monitor the breakout and retreat behaviors over the next few days to determine whether breakouts are decisive.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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