S&P Might Fall Back To August Low On Bearish Shooting Star

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday September 18, 2015.

We’ve noted in the previous Market Outlook that: “Wednesday’s bullish breakout above the late August recovery high of 1993 on the S&P signaled a significant change in trend direction – upward, in this case.   Right now, follow-through is the key.  Over the next few days, traders should look for a close above 2000.  That if happens, could trigger a massive rally, which would eventually take the index up to the trend channel moving average.”  As anticipated, stocks extended Wednesday’s gains in early Thursday session that saw the major indices spiked more than 1 percent before gave back all of the early gains and some more to close slightly lower.  For the day, the Dow Jones Industrial Average closed down 65.21 points, or 0.39 percent, at 16,674.74.  The S&P 500 closed down 5.11 points, or 0.26 percent, at 1,990.20.  The Nasdaq closed up 4.71 points, or 0.10 percent, at 4,893.95.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.98% to 21.14.

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Notably, Omega Protein Corp. (OME) bucked the overall lackluster trading action, jumped 3.02% Thursday to close at 16.72.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of OME suggests that the stock could climb above 21 after the downward trend halted.  Just so that you know, initially profiled in our September 10, 2015 “Swing Trader BulletinOME had gained about 7% and remained well position.

The graphics below are from our “U.S. Market ETF Trading Map”, show the near-term technical bias and trading ranges for OME and the S&P 500 index.  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 – Omega Protein Corp. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates OME as a Buy.  Over the past few weeks, OME has been trending lower in a short-term corrective mode as it worked off the overbought condition.  The late August down leg tested and respected support at the 50% Fibonacci retracement of the May-August upswing.  That level roughly corresponds with the trend channel moving average (as represents by the white line in the chart).

Thursday’s upside follow through served as a confirmation and extension to Wednesday’s bullish breakout above the August falling trend line, signals resumption of the 3-month upswing.  Money Flow measure held firmly near record high throughout the August downswing, indicating there was little selling interest.  This is bullish and should continue to provide foundation for further advance.  So, it seems to us that this rally could carry OME above the August high of 19.10 and up to the next level of resistance at the 127.2% Fibonacci extension, just above 21.

Support is at the weekly pivot low near 15.  Only a close below that level can wreck the near-term bullish outlook.

Chart 1.2 – S&P 500 index (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates the S&P as a Hold. The index cleared formidable resistance near 1994 Wednesday, breaking out from the 3-week triangle pattern.  The breakout however, did not confirm as a Thursday’s initial test of more important resistance at the area of the trend channel moving average was met with a new wave of selling interest that pushed the index below Wednesday’s breakout point.

In accordance to the Japanese candlestick pattern recognition, Thursday’s bearish shooting star candlestick is a clear indication of supply overwhelming demand.  .  Short-term momentum indicator shifted lower from near overbought zone, suggesting further short-term weakness likely.  Money Flow crossed below the zero line after moved above it on Wednesday.  This is bearish and suggested that the S&P might have to move to a much lower level to attract new buyers.

Right now follow-through is the key.  Over the next few days, we will be looking for a move below 1986 as a confirmation to Thursday’s bearish reversal signal.  That, if and when happens, could trigger a torrent of selling that targets the August rising trend line, near 1956.  If we lose that support then a retest of the August low of 1867 should follow shortly.

As for resistance, there is a strong band of resistance between 2020 and 2040, based on Thursday’s intraday high and the trend channel moving average.  Unless there is a close above 2040, the near-term risk remains lower.

In summary, Thursday bearish shooting star candlestick suggested that the S&P 500 index is in a non-confirmed failure breakout mode and may fall back to the August low as it extents the late day sell-off.   The bearish signal would be confirmed on a close below 1986.

(By:Michelle Mai for Capital Essence)

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