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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday February 1, 2017.
We’ve noted in the previous Market Outlook that: “an island reversal pattern is currently setting up in the daily chart of the S&P. This pattern typically favors a trend reversal, which is down in this case.” As anticipated, S&P plunged at the open and hit its -0.6% intraday low late morning. It then zig-zagged near the low until the closing algorithms kicked in near the close and pushed prices off the intraday low. For the day, the bench mark gauge fell 2.03 points, or 0.09 percent, to close at 2,278.87. The Dow Jones industrial average fell 107.04 points, or 0.54 percent, to end at 19,864.09. The Nasdaq composite rose 1.07 points, or 0.02 percent, to end at 5,614.79. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 0.93 percent to 11.99.
Quintiles IMS Holdings (Q) was a notable winner Tuesday, surged 4.17 percent on strong volume to 78.49. This is bullish from a technical perspective. In fact, a closer look at the daily chart of Q suggests that the stock could climb above 88 after the downward trend halted. Just so that you know, initially profiled in our February 5, 2015 “Swing Trader Bulletin” Q had gained about 30% and remained well position. Below is an update look at a trade in Q.
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 – Quintiles IMS Holdings. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates Q as a Buy. The overall technical outlook shifted to Bullish. Last changed January 31, 2017 from neutral.
Over the past few weeks, Q has been trending lower as it worked off overbought conditions. The early January downswing found support near the prior low set in mid-December. Tuesday’s upside breakout had helped clear resistance at the December falling trend line, signify a bullish breakout and upside reversal. Money Flow measure held mostly above the zero line since the stock reached an interim low in November, indicating there was little selling interest. This is a bullish development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, near 88.80. Resistance stands in the way of continue rally is at the October high, around 81.50.
Support is around 75. 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”]
So far, there was no follow-through to Monday’s bearish break. S&P rebounded after recent selloff found support near the high 2260s. The index broke above that level last week, then revered and retested it. Money Flow measure fell below the zero line, suggesting that buying enthusiasm had really been lost and that market is vulnerable to lower prices.
Short-term trading range: 2264 to 2294. For now, 2264 represents key price level. A close below that level indicates that an extreme change in the sentiment has occurred. Below it, a more important support lies at the trend channel moving average, currently at 2249. Immediate resistance is around 2294. A sustain advance above that level will invalidate Monday’s bearish signal and trigger acceleration toward 2310.
Long-term trading range: 2200 to 2300. A close above 2300 on a weekly closing basis signify a bullish breakout with upside target around 2400 but for now, it looks firm.
In summary, S&P established near-term support but upside gains could be limited. It seems to us that the upper and lower limit of a short-term trading range has been set between 2160 and 2194. So until proven otherwise, the index should bounce back and forth within that 24 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)
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