S&P in a Midst of Establishing Important Support Plateau

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 3, 2017.

We’ve noted in the previous Market Outlook that: “while several short-term indicators are pointing toward a fading trend, positive trading sentiment could help minimize downside risk.”  As anticipated, stocks closed mostly flat on Tuesday as the Federal Reserve kicking off a two-day monetary policy meeting.  For the day, the Dow Jones industrial average rose 36.43 points, or 0.17 percent, to close at 20,949.89.  The S&P gained 2.84 points, or 0.12 percent, to end at 2,391.17.  The Nasdaq rose 3.76 points, or 0.06 percent, to close at 6,095.37.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 4.75 percent to 10.59.

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Kindred Healthcare Inc. (KND) was a notable winner Tuesday, surged 5.76% to 10.10 – a fresh year to date high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of KND suggests that the stock could climb up to test key price level near 15 in the coming days.  Just so that you know, initially profiled in our March 10, 2017 “Swing Trader BulletinKND had gained about 15% and remained well position.  Below is an update look at a trade in KND.

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.

KindredHealthcare_20170502

Chart 1.1 – Kindred Healthcare Inc. (Daily)

Our “U.S. Market Trading Map” rates KND as a Buy. The overall technical outlook remains Bullish.  Last changed April 20, 2017 from bearish.

KND has been on a tear in recent days after the March correction found support at the bottom of its short-term trading range.  Tuesday’s breakout had pushed the stock above the March high, clearing an important resistance level.  Money Flow measure held firmly above the zero line since the stock reached an interim low in late April, indicating there was little selling interest. This is a bullish development, supporting further upside follow-through and a test of the summer 2016 high, just below 15.

KND had support near 8.70.  Short-term traders could use that level as the logical level to measure risk against.

Since bottoming in mid-April the Industrial Select Sector SPDR ETF (XLI) has been outperformed the boarder market, reflecting an internal strength.  There could be more gains ahead of for the section, according to our “U.S. Market Trading Map”. Below is an update look at a trade in XLI.

IndustrialSPDR_20170502

Chart 1.2 – Industrial Select Sector SPDR ETF (daily)

Our “U.S. Market Trading Map” rates XLI as a strong buy.  Over the past few days, XLI has been trending lower in a short-term corrective mode as it works off the overbought conditions.  The correction tested support as the late April breakout point.  Money Flow measure held firmly above the zero line, indicating there was little selling pressure.  Tuesday’s bullish reversal suggested that an important near-term low has been established and XLI is in an early stage of a new upswing that projects to 71, based on the 127.2% Fibonacci extension.  A close above 67.04 will confirm this.

XLI has minor support near 65.80.  Short-term traders could use that level as the logical level to measure risk against.

Sp500_CEM_20170502

Chart 1.3   – S&P 500 index (daily)

Short-term technical outlook remains bullish.  Last changed April 24, 2017 from bearish (see area ‘A’ in the chart).

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

Technically speaking, current price structure is exhibiting characteristics of a continuation pattern rather than a reversal pattern.  As you can see, the S&P continues basing sideways within the confines of the pink band following the late April breakout above the trend channel moving average.  This is a positive development but let’s notice that Money Flow measure still below the zero line.  This will put a cap on any rally attempts.

Short-term trading range: 2380 to 2396.  S&P has minor support near 2380. A failure to hold above that level will jeopardize the short-term uptrend and bring the trend channel moving average, currently at 2364, into view.  Resistance is around 2396-2400.  A sustain breakout above 2400 has a measured move to 2420.

Long-term trading range: 2320 to 2420.  Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within this 100 points range.

Bottom line, current price structure suggests that the S&P is in a midst of establishing an important support plateau from where a new up-leg will base and climb in the days ahead.

 

(By:Michelle Mai for Capital Essence)

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