More Backings and Fillings Likely

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 5, 2018.

We’ve noted in the previous Market Outlook that: ”S&P broke several key supports this week as the early February oversold relief bound ran out of steam near the lower boundary of the pink band.  Expect increase in near-term volatility.”  As anticipated, stocks sold off in early Friday session that saw the S&P fell more than 1 percent before buyers stepped in and pushed prices higher.  For the day, the bench mark gauge added 0.5 percent to close at 2,691.25.  The Nasdaq composite rose 1.1 percent to 7,257.87.  The Dow Jones industrial average fell 0.29 percent to close at 24,538.06.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 12.82 percent to close at 19.59.


One of the noteworthy developments in recent days has been the move in casinos stocks. The groups were under tremendous selling pressure since later January after MGM Resorts (MGM), Wynn Resorts (WYNN) and Las Vegas Sands (LVS) announced disappoint gaming revenue in Macau, a province of China.  In early January, the Macau Gaming Inspection & Coordination Bureau reported a 14.6% increase in December gross gaming revenue (GGR). That was below the 20% gain that analysts had forecast.  Alter surging nearly 38 percent in 2017, the VanEck Vectors Gaming ETF (BJK) down about 5 percent in February and more than 1 percent MTD.  Now the question is whether recent weakness is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in BJK.

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 – VanEck Vectors Gaming ETF (weekly)

Our “U.S. Market Trading Map” painted BJK bars in red (sell) – see area ‘A’ in the chart.  BJK sold off last week after the early February oversold relief rally ran out of steam near 48, the mid-December pivot high.  Last week’s massive bearish engulfing bar is a clear indication of supply overwhelming demand.  Right now the most important to watch is trading behavior near 45.80, or the 20-week moving average.  A close below that level on a weekly basis will confirm the bearish signal and a test of the more important support near the 42-43 zone should follow shortly.

BJK has resistance near 48.  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 slightly bearish.  Last changed March 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”]

As expected, the S&P moved down to test support at the green band after falling below the trend channel moving average on Wednesday.  Momentum remains neutral and does not appear strong enough to generate a meaningful breakout.  Nonetheless, Friday’s mid-day reversal suggested that the support should hold, at least for the time being.  Perhaps the positive Money Flow measure is the best illustration of the bulls’ case.  These elements suggested further backings and fillings in the coming days.

Short-term trading range: 2650 to 2700.  S&P has minor support near 2650.  A close below that level will bring the early February lows into view. The index has resistance near 2700.  A close above that level could trigger acceleration toward the trend channel moving average.

Long-term trading range: 2540 to 2820.  S&P has major support near 2540.  A close below that level will trigger a major sell signal with initial downside target near 2400.  The index has long-term resistance near 2820.  A trade above that level often marked significant market tops.

In summary, while the near-term technical bias remains somewhat bearish as S&P’s testing key price levels, more backings and fillings would not be a surprise.  What this means is that as the index inches into the area of key supports, aggressive buyers will most likely dips in their toes to see how the market reacts.  So, we’d be cautious against taking large position at this stage.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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