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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday October 17, 2016.
We’ve noted in the previous Market Outlook that: “market is setting up for a little bounce back tomorrow before heading lower again.” As anticipated, stocks traded significantly higher Friday that saw the S&P rose more than 16 points before closing less than a point higher, up 0.02 percent, to end at 2,132.98. The Dow Jones industrial average rose 39.44 points, or 0.22 percent, to close at 18,138.88. The Nasdaq rose 0.83 points, or 0.02 percent, end at 5,222. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 3.42 percent to 16.12.
Open Text Corp. (OTEX) was a notable winner Friday, rose 0.56% to 64.15. This is bullish from a technical perspective. In fact, a closer look at the daily chart of OTEX suggests that the stock could climb above 73 after the downward trend halted. Just so that you know, initially profiled in our July 7, 2016 “Swing Trader Bulletin” OTEX had gained about 10% and remained well position. Below is an update look at a trade in OTEX.
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 – Open Text Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates OTEX as a Buy. The overall technical outlook remains bullish. Last changed October 4, 2016 from neutral.
Over the past few days, OTEX has been trending lower in a short-term corrective mode as it worked off the overbought conditions. The September correction tested and respected support at the trend channel moving average (as represents by the white line in the chart). With an exception of a brief pullback in early October, Money Flow measure held firmly above the zero line since the stock reached an interim low in February 2016. This is a bullish development, supporting further upside follow-through and a test of key price level around 73.70, based on the 127.2% Fibonacci extension. Resistance stands in the way of continue rally is at the September high of 66.84.
Support is at the trend channel moving average, around 63. 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 11 from bullish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
S&P moved up to test resistance at recent breakdown point near 2150. In accordance to the Japanese candlestick pattern recognition, Friday’s bearish topping bar is a clear indication of supply overwhelming demand. Additionally, while Money Flow measure trended higher, it’s still below the zero line, indicating a negative net demand for stocks. This is a bearish development, suggesting further advance unlikely. This increased the probability for a retest of the 2114-2100 zone.
Near-term, the market had carved out key support and resistance for traders to monitor. For now, 2150 is the point of resistance. That level was significant when the index felt through it earlier last week and it could now become an important resistance level. Although not expected at this moment, a close above that level could trigger a short-covering rally with initial target near the late September high of 2175.
As for support, 2114-2100 represents a major support. This support needs to hold on a daily closing basis, according to our work, in order to prevent a test of secondary support near 2050, which we’ve determined using the height of the triangle and projected it downward.
In summary, current rally is testing key resistance level near 2150 on the S&P. The negative Money Flow measure suggested that this resistance might hold. A failure to move above key resistance means that long-term buying pressure has finally been exhausted. The stronger the resistance level, the more powerful the selloff. This is the danger in the current market.
(By：Michelle Mai for Capital Essence)
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