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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday June 8, 2018.

We’ve noted in the previous Market Outlook that: “Over the next few days, we will look for trading behaviors as the index probes the red band.  The market had historically developed key resistance near that level.”  As anticipated stocks traded higher in early Thursday session that saw the S&P traded as high as 2,779.90 before sellers stepped in and pushed prices lower.  For the day, the bench mark gauge down by 0.1 percent to 2,770.37.  The Dow Jones industrial average rose 0.38 percent to close at 25,241.41. The Nasdaq composite dropped 0.7 percent to 7,635.07.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 4.21 percent to close at 12.13.

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The euro climbed to three-week peaks against the US dollar Thursday as traders confident that the European Central Bank at next week’s monetary policy meeting will flag the winding down of its vast bond-buying program by the end of this year.  The widely watched Invesco CurrencyShares Euro Currency Trust (FXE) rose 0.2 percent, bringing its weekly gains up to 1.2 percent.  Now the question is whether the rally has more legs?  Below is an update look at a trade in FXE.

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 – Invesco CurrencyShares Euro Currency Trust (daily)

Our “U.S. Market Trading Map” painted FXE bars in green (buy) – see area ‘A’ in the chart. FXE had been on a tear in recent after the April selloff met support at the 50% Fibonacci retracement of the 2017-2018 upswing.  Thursday’s upside follow-through confirmed Wednesday’s bullish breakout above the 20-day moving average, clearing an important hurdle based on moving averages.  This is a bullish development, supporting further upside follow-through and a test of the more important resistance near the 115.50 area.

FXE has support near 110.50.  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 June 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”]

S&P retreated after recent rally met anticipated resistance at the lower boundary of the red band.  As mentioned, a trade above the lower boundary of the red band indicated extreme overbought conditions – a situation that often precursor to a meaningful correction.  Momentum indicator shifted lower from near overbought zone, indicating an internal weakness.  Adding to concerns in the negative divergence on Money Flow measure, which peaked in mid-May and formed series of lower highs as prices ascending.  These elements suggesting that hot money is leaving the bullish bandwagon.  With this in mind, we’d look to trim positions into short-term overbought strength.

Short-term trading range: 2740 to 2800.  S&P has minor support near 2740.  A close below that level has measured move to 2700.  The index has resistance near 2800-2814, based on the upper boundary of its short-term trading range.  The market had historically developed important near-term top around that level.

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, the fact that S&P is short-term overbought as it tested key price level that had been successful in repelling price action in the past does not favor a sustain breakout.  As for strategy, we’d look to trim positions into short-term overbought strength.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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