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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday May 25, 2018.

We’ve noted in the previous Market Outlook that: “S&P retested and respected support at the lower boundary of its 2-week sideways trading range.  Nevertheless, Wednesday’s rally attempt did not improve the posture of our short-term indicators, which remain supportive of further backings and fillings.”  As anticipated, stocks traded lower in early Thursday session that saw the S&P traded as low as 2,707.38 before buyers stepped in and pushed prices off the intraday low.  For the day, the bench mark gauge shed 0.2 percent to close at 2,727.76.  The Dow Jones industrial average fell 0.30 percent to close at 24,811.76.  The Nasdaq composite finished largely unchanged.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.4 percent to close at 12.53.

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One of the noteworthy developments in recent days has been the move in precious metal.  Gold futures rose 1.15 percent to settle at $1304.4 per ounce as traders seek refuge in the yellow metal during periods of geopolitical uncertainty and turmoil.  The SPDR Gold Shares (GLD) was up 0.86 percent to 123.59, down 0.8 percent MTD, underperformed 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 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.  Since reaching a multi-year low in late 2015, GLD has been coiled into a tight trading range as it worked off the oversold condition.  There is currently a test of support at the lower boundary of the 2016-2018 triangle after the early 2018 rally ran into resistance near 130.  That level roughly corresponds with the upper boundary of the triangle and the 38.2% Fibonacci retracement of the major downswing.  Right now the most important to watch is trading behavior near 121.  A close below that level will break the 2016 rising trend line and a test of the multi-year low, near 100, should be expected.

The upper boundary, near 132, represents key resistance.  A sustain breakout above that level indicates that the multi-year triangle pattern had resolved itself into a new upswing with initial target near 143, based on the 50% Fibonacci retracement.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook remains neutral.  Last changed May 21, 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, the S&P rebounded nicely after the early selloff found support at the lower boundary of its 2-week sideways trading range, just above 2700.  The big picture remains the same.  There is a consolidation between 2700 and 2750, which represents the digestion period in the aftermath of the early May massive rally.  Money Flow measure is still above the zero line, indicating a positive net demand for stocks. Momentum indicator hovers near overbought zone, indicating an internal strength.  These elements suggested that the path with least resistance remains to the upside.

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 2674, into view.  The index has resistance near 2740-2750.  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, trading behavior in the S&P remains constrained by a short-term sideways pattern and shown little evidence of a sustainable change in trend.  As for strategy, we’d look to increase exposure into short-term market dips.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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