Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday April 13, 2018.
Stocks rose sharply on Thursday after Donald Trump clarified in a tweet that a possible U.S. missile strike on Syria might not be imminent. For the day, the Dow Jones industrial average added 1.21 percent to close at 24,483.05. The S&P rose 0.8 percent to 2,663.99. The Nasdaq composite advanced 1 percent to 7,140.25. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 8.65 percent to close at 18.49.
One of the noteworthy developments in recent days has been the move in Germany stocks. The iShares MSCI Germany ETF (EWG) up for 3 straight weeks, bringing its MTD gains up to 2.4 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 EWG.
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 Germany ETF (daily)
Our “U.S. Market Trading Map” painted EWG bars in green (buy) – see area ‘A’ in the chart. The first dominant feature on the chart is the rising trend started in late 2016. The second dominant feature of the chart is the downward trend started in early 2018. The late January massive selloff pushed the ETF below the 50-day moving average, the level that offered support since EWG broke out in late 2016. The ETF tested and held support at the 38.2% Fibonacci retracement. This week’s rally pushed the ETF above the 50-day moving average – clearing an important hurdle based on moving averages. Right now follow-through is the key. A close above 32.60 on a weekly basis has measured move to around 36.
EWG has support near 32. 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 bullish. Last changed April 10, 2018 from slightly 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 is heading toward the trend channel moving average, near 2700, following Tuesday bullish breakout above the upper boundary of the green band. Momentum had been strengthened, supporting further upside follow-through. These elements increased the probability for a retest of resistance near the 2700 zone. Not only is that it’s a significant overhead resistance, the lagging Money Flow measure does not favor a sustain break to the upside so it should not surprise to see the index correcting lower from near 2700.
Short-term trading range: 2600 to 2700. S&P has minor support near 2636. A close below that level has measured move to 2600. The index has resistance near 2660. A close above that level could trigger acceleration toward the trend channel moving average, near 2700.
Long-term trading range: 2450 to 2700. S&P has key support near 2580. A close below that level will trigger a major sell signal with downside target near 2450. The index has resistance near 2700.
In summary, our near-term work on momentum and price structure suggested that the late March oversold relief rally can be sustained for a few days, potentially allowing for a test of 2700 before a significant pullback unfolds. Nevertheless, traders should consider taking profits into short-term rallies as market internals do not appear strong enough to generate sustain breakouts.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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