Market Internals Remain Supportive of Further Upside

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday May 14, 2018.

Stocks closed higher Friday as strength in energy stocks had helped offset in weakness in large-cap tech stocks.  For the day, the Dow Jones industrial average rose 0.37 percent to close at 24,831.17. The S&P gained 0.2 percent to close at 2,727.72. The Nasdaq composite closed just below breakeven at 7,402.88.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 4.38 percent to close at 12.65.


One of the noteworthy developments in recent days has been the move in gaming stocks.  The group attracted strong buying support in recent days following reports that Macau gaming revenue soared 27.6% in April, beat the 21% consensus analyst estimate, according to the Gaming Inspection and Coordination Bureau.  The VanEck Vectors Gaming ETF (BJK) jumped 1.5 percent last week to 48.45, bringing its YTD gain up to nearly 4 percent, outperformed the S&P.  Now the question is whether the rally has more legs?  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 green (buy) – see area ‘A’ in the chart.  BJK has been on a tear in recent days after the early 2018 correction founds support near the 4-year moving average.  The April rally pushed the ETF above the 20-week moving average, clearing an important hurdle.  Last week’s upside follow-through confirmed the bullish breakout and setting the stage for a test of the early 2018 high, near 49.50.  A close above that level on a weekly basis signal resumption of the 2016 upswing and a retest of the 2014 high, just above 56, should be expected.

BJK has support near 47.  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 neutral.  Last changed May 10, 2018 from bullish (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

Friday’s upside follow-through confirmed Thursday’s bullish breakout from the early 2018 massive triangle pattern. Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure.   Momentum indicator trended higher from near overbought zone, allowing additional upside probing.  These elements increased the probability for a test of resistance near the 2750-2800 zone, or the March high.  A close above 2730 will confirm this.

Short-term trading range: 2700 to 2750.  S&P has support near 2700. A close below that level will bring the trend channel moving average, around 2677, into view.  The index has immediate resistance near 2730.  A close above that level would trigger acceleration toward the March highs.

Long-term trading range: 2500 to 2870.  S&P has key support near 2600.  A close below that level will trigger a major sell signal with downside target near 2500. But it’s not expected this week.  The index has resistance just above 2700.  A sustain advance above that level could trigger acceleration toward the early 2018 highs but for now it looks firm.

In summary, S&P has confirmed a breakout above key resistance in a reflection of improved momentums.  Market internals remain supportive of further upside follow-through.  So it seems to us that the rally can be sustained for a few days, potentially allowing for a test of 2750-2800 before a significant pullback unfolds.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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