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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 2, 2018.

We’ve noted in the previous Market Outlook that: “Monday’s massive bearish engulfing bar suggested that suggested that S&P is at or very close to a significant short-term top. Near-term risk is to the downside.  Traders should consider buying downside protection on winning positions.”  As anticipated, stocks traded lower in early Tuesday session that saw the S&P traded as low as 2,625.41before buyers stepped in and pushed the index off the intraday low.  For the day, the bench mark gauge rose 0.25 percent to 2,654.80.  The Dow Jones industrial average fell 0.27 percent to close at 24,099.05.  The Nasdaq composite rose 0.9 percent to close at 7,130.70.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 2.76 percent to close at 15.49.

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One of the noteworthy developments in recent days has been the move in gold. The yellow metal slid to a two-month low on Tuesday as the dollar strengthened ahead of a U.S. Federal Reserve policy meeting.  While the FED is widely expected to stand pat on policy for now, traders will be closely watching for hints of an interest rate hike in June.  Spot gold was down 0.66 percent at $1,306.20 an ounce.  The SPDR Gold Shares (GLD) fell 0.71 percent to 123.71.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in GLD.

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 – SPDR Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in red (sell) – see area ‘A’ in the chart.  Following the 2011-2016 massive drop, GLD has been coiled into a tight trading range as it worked off oversold conditions.  GLD has been trending lower over the past few weeks after the late 2017 rally ran into the massive 2-conjoining resistance near 130 zone, or the 2016-2017 highs and the 38.2% Fibonacci retracement.  Over the next few weeks, traders should monitor trading behaviors as the 2016 rising trend line, near 120, is tested as support. A close below that level will break the 2-year upswing and a retest of the 2016-2017 lows should be expected.

GLD has resistance near 130.  A close above that level on a weekly basis has measured move to 140, based on the 50% Fibonacci retracement.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook shifted to neutral (with a negative bias).  Last changed May 1, 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”]

Once again, S&P rebounded nicely after the early selloff support near the upper boundary of the green band.  The main event here is the downward push against key support at the green band.  The level that offered support since the index broke down in late January.  Money Flow measure has been strengthened over the past weeks but does not appeared strong enough to fuel a significant push upward from here.  Right now, the most important thing to look for is trading actions near 2660 zone.  The bulls must hurdle and sustain above that level.  Staying below it heralds a significant trend shift.

Short-term trading range: 2600 to 2700.  S&P has minor support near 2640. A close below 2640 has measured move to 2600. The index has a strong band of resistance between 2650 and 2710.  A breakout above 2710 would trigger a new buy signal but for now it looks frim.

Long-term trading range: 2580 to 2830.  S&P has key support near 2580.  A close below that level will trigger a major sell signal with downside target near 2460. But it’s not expected next week.  The index has resistance near 2700.  A sustain advance above that level could trigger acceleration toward the March high but for now it looks firm.

In summary, while the April recovery rally appeared to have run out of steam, the short-term uptrend pressure remains up and the charts are still building on encouraging formations. Though there just isn’t enough bullish power to fuel a significant push upward from here. With all that said, the market needs some sorts of positive catalysts and a good consolidation to build up the needed energy for a new leg higher.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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