S&P Triangle Formation Resolved To The Downside

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday September 23, 2015.

We’ve noted in the previous Market Outlook that: “over the next few days, traders should monitor trading behaviors near 1950.  If the index starts coming under 1950, it’ll break the 4-week uptrend.  That would imply more supply is coming into the market and a retest of the August low should be expected.”  As anticipated, the S&P traded as low as 1935 after breaking support band around 1950 in early Tuesday trading session before recovered to close near 1942, down 1.23 percent.  The Dow Jones Industrial Average closed down 179.72 points, or 1.09 percent, at 16,330.47.  The Nasdaq closed down 72.23 points, or 1.50 percent, at 4,756.72.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged 11.42% to 22.44.

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Notably, LHC Group Inc. (LHCG) bucked the overall trend, jumped 1.98% to 48.44.  This is bullish from a technical perspective.  In fact, a closer look at the daily chart of LHCG suggests that the stock could be in an early stage of a new upswing that projects to 51.83 at minimum but has an overshot target over 58.  Just so that you know, initially profiled in our March 16, 2015 “Swing Trader BulletinLHCG had gained about 49% 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 LHCG 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 – LHC Group Inc. (daily)

As indicated in the above chart, our “U.S. Market ETF Trading Map” rates LHCG as a Buy.  Over the past few days, LHCG has been trending lower in a short-term corrective mode as it works off the overbought condition.  In accordance to the Japanese candlestick pattern recognition, Tuesday’s bullish engulfing bar is a clear indication of demand overwhelming supply.  Perhaps the positive Money Flow measure is the best illustration of the bulls’ case.

Right now follow through is the key.  Over the next few days, traders should monitor trading behavior near 48.80.  A close above that level signals resumption of the multi-month upswing that projects to the early August high of 51.83 at minimum but has an overshot target over 58.30, based on the 127.2% Fibonacci extension of the February to August 2015 upswing.

Support is at the trend channel moving average (as represents by the white line in the chart), currently at 44.85.  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 Sell.  Key technical development in Tuesday trading session was a clear break below the August rising trend line – the level that offered support since the index reached an interim low in late August.  This is bearish and suggested that the 4-week triangle pattern had resolved itself into a new downswing.

Tuesday bearish breakdown could be signaling a new bear market trend.  Perhaps the negative Money Flow measure is the best illustration of the bears’ case.  The breakdown would be confirmed on another close below 1929, which would support near-term downside follow-through and a retest of the important support in the 1867 area.

As usual we must stress out that a close above 1960 will jeopardize Tuesday’s bearish signal and a retest of the trend channel moving average is possible.

In summary, Tuesday’s bearish broke down below August rising trend line suggested that the 4-week triangle pattern had resolved itself into a new downswing.  Right now, follow-through is the key.  Over the next few days, traders should look for a close below 1929 on the S&P.  That if happens, could trigger a torrent of selling, which would eventually push the index down to the August low of 1867.

(By:Michelle Mai for Capital Essence)

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