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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday December 13, 2016.
We’ve noted in the previous Market Outlook that: “while the market could continue to drift higher as trading sentiment remains strong, the fact that the S&P is overbought as it approached key price level that had been successful in repelling price action in the past suggested that upside gains could be limited.” As anticipated, stocks traded higher in early Monday session before sellers stepped in and pushed prices lower. For the day, the S&P fell 2.57 points, or 0.11 percent, to end at 2,256.96. The Dow Jones industrial average rose 39.58 points, or 0.2 percent, to close at 19,796.43. The Nasdaq composite dropped 31.96 points, or 0.59 percent, to close at 5,412.54. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 7.57 percent to 12.64.
Wal Mart Stores Inc. (WMT) was a notable winner Monday, jumped 2.27% to 71.67. This is bullish from a technical perspective. In fact, a closer look at the daily chart of WMT suggests that the stock could climb above 80 in the coming days. Just so that you know, initially profiled in our January 15, 2016 “Swing Trader Bulletin” WMT had gained about 14% and remained well position. Below is an update look at a trade in WMT.
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 – Wal Mart Stores Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates WMT as a Hold. The overall technical outlook remains neutral. Last changed November 21, 2016 from bearish.
Over the past few weeks, WMT has been basing sideways using the trend channel moving average (as represents by the white line in the chart) as traders digested the October massive run. Money Flow measure held mostly above the zero line, indicating there was little selling interest. Monday’s upside breakout had helped clear resistance at the August falling trend line, signify a bullish breakout with upside target around 80, based on the 127.2% Fibonacci extension of the November 2015 to August 2016 upswing. Resistance stands in the way of continue rally is at the August high of 74.66.
Support is around 70. 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 bullish. Last changed November 14 from neutral (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
S&P retreated after a test of resistance near the 2270 zone was met with a new wave of selling interest. In accordance to the Japanese candlestick pattern recognition, Monday’s spinning top indicated uncertainty. Technically speaking, when a spinning top forms after an upswing in the market, it can be an indication of a pending reversal, as the indecision in the market is representative of the buyers losing momentum.
Money Flow measure had trended lower but still above the zero line, indicating that the bulls were more aggressive as the stock rallied than bears were as it fell and that net demand for stocks was strong. So, pullback should shallow and quick.
Near-term, the market had carved out key support and resistance for traders to monitor. The lower end of the red band, around 2243 represent key support. If the November rally were to continue, the index must hold and bounce off that level.
As for resistance, the weekly pivot high of 2264 represents key resistance. A close above that level could trigger acceleration toward 2300 but for now it looks firm.
In summary, short-term momentum has weakened and overbought conditions are widespread enough to suggest that the pullback will continue this week. Although seemingly vulnerable to further short-term weakness, trading sentiment remains strong so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.
(By：Michelle Mai for Capital Essence)
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