Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday October 27, 2016.
We’ve noted in the previous Market Outlook that: “pullback unfold Tuesday, leading to a test of support at the upper end of the green band, near 2140 by the S&P. Market internal has weakened but support is strong in the 2140-2114 area. This could help minimize downside follow-through and widespread breakdowns. As for strategy, traders should consider increase exposure into market dips.” As anticipated, stocks traded sharply lower in early Wednesday session amid lower oil prices and disappointing Apple’s earning reports. The S&P traded as lower as 2,132 before buyers stepped in and pushed prices off the intraday low. For the day, the bench mark gauge fell 3.73 points, or 0.17 percent, to end at 2,139.43. The Dow Jones industrial average rose 30.06 points, or 0.17 percent, to close at 18,199.33. The Nasdaq dropped 33.13 points, or 0.63 percent, to close at 5,250.27. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 5.79 percent to 14.24.
Northrop Grumman Corporation (NOC) was a notable winner Wednesday, jumped 3.88 percent to 228.05 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of NOC suggests that the stock could climb above 243 in the coming days. Just so that you know, initially profiled in our October 25, 2016 “Swing Trader Bulletin” NOC had gained about 6% and remained well position. Below is an update look at a trade in NOC.
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 – Northrop Grumman Corporation. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates NOC as a Buy. The overall technical outlook remains bullish. Last changed October 7, 2016 from neutral.
The first dominant feature on the chart is the rising trend starting mid-August 2015 to July 2016. The second dominant feature of the chart is the sideways consolidation between 223 and 206 since early-July, which represented the digestion period.
NOC has been on a tear in recent weeks after the July correction found support near the 23.6% Fibonacci retracement. Wednesday’s upside breakout had helped clear resistance at the July high, signify a bullish breakout. Money Flow measure surged to multi-month high, indicating an increase in buying pressure. This is a bullish development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension near 243.50.
Support is around 220. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Chart 1.2 – S&P 500 index (daily)
Short-term technical outlook remains neutral. Last changed October 25 from bullish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
As expected, S&P moved down to test support at the green band after last week oversold bounce attempt ran out of steam near the trend channel moving average. Money Flow measure trended lower from below the zero line, indicating an increase in selling pressure. This is a bearish development, suggesting that the index might have to move to a much lower level to attract new buyers.
Over the next few days, traders should monitor trading actions, as the green band, currently at 2139-2129, is tested as support. A close below 2129 is bearish. Technically speaking, when key support breaks, it usually begets more selling. The next downside level to watch is 2114, based on the October low. That level roughly corresponds with the upper end of the dark-green band, or extreme oversold zone. As it was the case of late, pullbacks to that level often marked short-term market bottoms.
For now, the trend channel moving average, currently at 2157, represents key resistance. A close above that level will shift the short-term trend up and a test of 2200 should follow shortly but for now it looks firm.
In summary, it seems to us that the upper and lower limit of a short-term trading range has been set between the 2157 and 2129 levels on the S&P 500 index. So until proven otherwise, the index should bounce back and forth within that 28 points range. At some points, of course, the market will either break above or below that range. That, if and when it happens, should be a fierce move.
(By：Michelle Mai for Capital Essence)
© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.
