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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday June 26, 2018.

Stocks sold off sharply Monday following report that the U.S. could prevent companies that had at least 25 percent Chinese ownership from buying businesses that possessed industrially significant technology.  For the day, the Dow Jones Industrial Average dropped 1.33 percent to close at 24,252.80.  The S&P fell 1.4 percent to 2,717.07. The Nasdaq composite pulled back 2.1 percent to close at 7,532.01.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, soared 25.85 percent to close at 17.33.

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Base metals tumble Monday as the escalating trade conflict between the U.S. and China slams industrial metals directly affected by trade pacts as well as those hit by the risks of an economic slowdown.  As such, the Invesco DB Base Metals Fund (DBB) fell 1.77 percent to 17.73, down 8.7 percent YTD. Now the question is whether Monday’s massive selloff is a beginning of an end or there’s more pains ahead?  Below is an update look at a trade in DBB.

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 DB Base Metals Fund (weekly)

Our “U.S. Market Trading Map” painted DBB bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, DBB has been trending lower in a short-term corrective mode after the 2016 recovery rally ran out of steam near the 61.8% Fibonacci retracement of the 2011-2016 major downswing.  This week’s downside follow-through confirmed last week’s breakdown below the 1-year moving average, signify a downside reversal.  This is a bearish development, increased the probability for a test of the more significant support near 15.50, based on the 4-year moving average.

Resistance is strong near 18.50.  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 shifted to bearish.  Last changed June 25, 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 moved down to test support at the trend channel moving average after falling below the lower boundary of the pink band last week.  This level is significant in charting terms.  It was tested several over the past months.  Money Flow measure fell below the zero line, indicating a negative net demand for stocks.  Momentum indicator has been trended lower over the past few weeks but it’s much closer to oversold zone.  This could help putting a short-term floor under the market.  2700 is the line in the sand. A close below that level would see a massive pickup in volatility.

Short-term trading range: 2700 to 2750.  S&P has support near 2700.  A close below that level has measured move to 2660.  The index has resistance near 2750.  If the market is going to find a bottom in the near term, we want to see the S&P climbs above 2750. The longer the index stays below that level, the more vulnerable it is to lower prices.

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, Money Flow measure and momentum had been deteriorated as S&P moved down to test support at the 2700 zone.  Nevertheless, this area is too big and too important to fall quickly so it should not be surprising to see some backings and fillings in the coming days.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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