Cautiously Optimistic

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday November 29, 2018.

We’ve noted in the previous Market Outlook that: “the S&P’s short-term technical outlook shifted to bullish (buy).  Last changed November 27, 2018 from bearish (sell).”  The S&P extended weekly gains by 2.3 percent on Wednesday after Fed Chair Powell said he sees current interest rates “just below” neutral.  The Dow Jones Industrial Average jumped 2.5 percent while the Nasdaq Composite surged 3 percent.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 3 a percent to 18.49.

The cyclical transport stocks had noteworthy performances, supported by lower energy prices.  WTI crude dropped 2.7 percent to $50.20/bbl after crude stockpiles rose for the 10th consecutive week after the Energy Information Administration reported a higher-than-expected build of 3.6 million barrels.  The iShares Transportation Average ETF (IYT) jumped 2.51percent on the day to 194.20 and is up 1.3 percent YTD, slightly underperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in IYT.

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 – iShares Transportation Average ETF (weekly)

Our “U.S. Market Trading Map” painted IYT bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, IYT has been trending lower after the early November oversold bounce ran into resistance at the 1-year moving average. That level was significant when the ETF fell below in early October.  This week’s rally pushed IYT slightly above the closely watch 194 zone.  This is a positive development.  A close above that level on a weekly basis has measured move to 209, or the prior high set in September.

IYT has support just below 182.  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 (buy).  Last changed November 27, 2018 from bearish (sell) (see area ‘A’ in the chart).

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

Key technical development in Wednesday session was a clear cut above resistance at last week’s bearish breakout point.  Money Flow measure trended higher from below the zero line, indicating selling pressure had eased.  Momentum has been strengthened, allowing additional upside probing. Right now the most important thing to watch is the rally and retreat behavior as the 2780 zone, or the trend channel moving average and the multi-year rising trend line, is tested as resistance.  A close above that level signify a bullish breakout and setting the stage for a rapid advance toward the prior high set in October.

Short-term trading range: 2700 to 2780.  S&P has support near 2700.  A close below that level has measured move to 2630, or last week’s low.  The index has resistance near 2780.  A close above that level could trigger acceleration toward the 2815 zone.

Long-term trading range: 2560 to 2830.  S&P has support near 2640.  A close below that level on a monthly basis has measured move to 2320.  The index has resistance near 2800.  A close above that level has measured move to 2940.

In summary, S&P cleared key technical resistance, breaking out from the one-week congestion trading pattern.  However, given the looming resistance near 2780, there is no big commitment to accumulate stocks aggressively at this point.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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