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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday February 23, 2017.
We’ve noted in the previous Market Outlook that: “while there seems to be room to go higher, traders must be mindful of overbought conditions on the daily chart (see area ‘A’ in the chart). This is a short-term negative development, suggesting that upside momentum might not sustain without at least a short-term breather. So, traders should proceed with some caution in the short-term.” As anticipated, S&P closed lower Wednesday after the minutes from the Federal Reserve’s previous meeting hinted that a rate hike coming “fairly soon.” For the day, the bench mark gauge fell 2.56 points, or 0.11 percent, to end at 2,362.82. The Dow Jones industrial average rose 32.60 points, or 0.16 percent, to close at 20,775.60. The Nasdaq composite declined 5.32 points, or 0.09 percent, to close at 5,860.63. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 1.47 percent to 11.74.
Dow Chemical Co (DOW) was a notable winner Wednesday, jumped 4 percent on strong volume to 63.67 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of DOW suggests that the stock could climb above 75 after breaking out from the so-called bullish flag pattern. Just so that you know, initially profiled in our February 6, 2017 “Swing Trader Bulletin” DOW had gained about 6% and remained well position. Below is an update look at a trade in DOW.
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 – Dow Chemical Co. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates DOW as a Buy. The overall technical outlook remains Bullish. Last changed November 30, 2016 from bearish.
Over the past few days, DOW has been trending lower in a short-term corrective mode as it worked off the overbought condition. Wednesday’s bullish breakout had helped clear resistance at the February high, suggesting that the bull flag pattern had resolved itself into a new upswing. Money Flow measure held above the zero line throughout recent correction, indicating there was little selling interest. This is a bullish development, supporting further upside follow-through and a rapid advance toward 261.8% Fibonacci extension, just above 75.
Support is around 61. 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 February 9, 2017 from neutral (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
Looking at the daily chart of the S&P, we can see that there is currently a test of resistance at the upper boundary of the red band. While trading sentiment remains strong, the lagging Money Flow measure indicated a lack of commitment among the bulls. Additionally, Wednesday’s inside bar warned that a short-term correction is brewing in the not too distant future.
Short-term trading range: 2345 to 2375. The upper boundary of the red band, around 2375, represents key resistance. A trade above that level often marked short-term market top. The lower boundary of the red band, currently at 2345, represents minor support. A close below that level will bring the important sentiment 2300 mark into view. For now, 2300 is the line in the sand. A close below that level indicates that an extreme change in the sentiment has occurred and increase the probability of a significant downside correction.
Long-term trading range: 2257 to 2344. S&P traded slightly above the upper boundary of its long-term trading range. Probability of a sustain breakout is extremely limited. Expect a modest pullback toward 2340. For now, 2257 represents key support. A close below that level signals a full blow correction but for now it looks firm.
In summary, our near-term work on price structure and momentum suggested strongly that S&P could be heading towards a period of consolidation. However, given that long-term trend remains bullish, any significant price drops should be met by aggressive buyers.
(By：Michelle Mai for Capital Essence)
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