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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday December 1, 2016.
We’ve noted in the previous Market Outlook that: “S&P is in a midst of a short-term consolidation phase, which may last about 2 to 5 trading sessions.” As anticipated, stocks closed mixed Wednesday as traders digested a fresh batch of economic data. For the day, the S&P slipped 5.85 points, or 0.27 percent, to end at 2,198.81. The Dow Jones industrial average rose 1.98 points, or 0.01 percent, to close at 19,123.58. The Nasdaq fell 56.24 points, or 1.05 percent, to close at 5,323.68. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 3.33 percent to 13.33.
Encana Corporation (ECA) was a notable winner Wednesday, soared 11.41% to 12.60 – a fresh 52-week closing high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of ECA suggests that the stock could climb up to test key technical level near 15.80 in the coming days. Just so that you know, initially profiled in our July 13, 2016 “Swing Trader Bulletin” ECA had gained about 56% and remained well position. Below is an update look at a trade in ECA.
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 – Encana Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates ECA as a Buy. The overall technical outlook remains bullish. Last changed November 14, 2016 from neutral.
Over the past few days, ECA has been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction found support at the trend channel moving average (as represents by the white line in the chart). Wednesday’s upside breakout had helped clear resistance at the prior high set last week, signaled resumption of the February upswing. Money Flow measure held firmly 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 test of key technical level near 15.80, based on the 61.8% Fibonacci retracement of the 2014 to 2016 downswing. Resistance stands in the way of continue rally is around 13.30, or the 50% Fibonacci retracement.
Support is just below 11. 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”]
As expected, S&P basing sideways near the lower end of the red band as it worked off overbought conditions. Money Flow measure crossed below the zero, indicating an increase in selling pressure. Momentum has deteriorated, but does not appear strong enough to generate major breakdowns. We expect further consolidation within the 2190 to 2215 zone.
Short-term trading range: 2190 to 2215. A failure to hold above 2190 will bring secondary support around 2170 into view but for now it looks firm. S&P has minor resistance near 2215. A close above that level could trigger acceleration toward 2226.
Long-term trading range: 2173 to 2265. A close below 2173 on a weekly closing basis signify a bearish trend reversal and a retest of the important sentiment 2100 should expected but for now it looks firm.
Strategy: long (buy the dips). Traders should buy into any pullback toward the lower end of the range and sell (or at least take some profits) near the upper end of the range. Stop (cut loss) if S&P closes below the lower end of the range.
In summary, we wouldn’t look too much into Wednesday’s trading action because it keeps the S&P within its short-term consolidation phase. Support is strong in the 2190 area and downside momentum does not appear strong enough to generate a decisive breakdown. As for strategy, traders should consider buying into market dips in anticipation of a significant year-end rally.
(By：Michelle Mai for Capital Essence)
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