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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 11, 2016.
We’ve noted in the previous Market Outlook that: “S&P held and bounced off support at the trend channel moving average. This is a short-term positive development and supported upside follow-through in the days ahead. Perhaps the positive Money Flow measure is the best illustration of the bulls’ case. Over the next few days, traders should monitor trading behavior near 2065. A close above that level would trigger acceleration toward the 2085-2100 zone.” As anticipated, stocks closed significantly higher Tuesday amid a weakening yen and higher oil prices. For the day, the S&P closed up 25.70 points, or 1.25 percent, at 2,084.39. The Dow Jones industrial average closed up 222.44 points, or 1.26 percent, at 17,928.35. The Nasdaq composite closed up 59.67 points, or 1.26 percent, at 4,809.88. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 6.45 percent to 13.63.
Federal Agricultural Mortgage Corp (AGM) was a notable winner Tuesday, surged 4.32% on strong volume to 43.50 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of AGM suggests that the stock could climb above 48 in the coming days. Just so that you know, initially profiled in our February 11, 2016 “Swing Trader Bulletin” AGM had gained more than 43% and remained well position. Below is an update look at a trade in AGM.
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 – Federal Agricultural Mortgage Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates AGM as a Buy. Over the past few days, AGM has been basing sideways near the range top resistance as traders digested the late April massive run. Tuesday’s Monday’s upside breakout had helped clear resistance at the range top, signals resumption of the January upswing. Money Flow measure surged to multi-month high, indicating an increase in buying pressure. This is a positive development and support a test of a more important resistance near the 48.70 area, based on the 161.8% Fibonacci extension. Resistance stands in the way of continue rally is at the 127.2% Fibonacci extension, just below 44.
Key support is around 41. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Japanese yen weakened against the dollar to around 109.3 yen after Japanese Finance Minister Taro Aso said that his government will intervene in the currency market if “one-sided” yen rises last long enough to hurt the economy. As such, the Guggenheim CurrencyShares Japanese Yen Trust (FXY) fell 0.86% to 88.52. Below is an update look at a trade in FXY.
Chart 1.2 – Guggenheim CurrencyShares Japanese Yen Trust (daily)
The overall technical outlook remains bullish. Last changed April 28 from neutral. Our “U.S. Market Trading Map” was looking at FXY from a Sell side back in May 3, 2016. The currency dropped from the highest level since late 2014 but it’s now approaching the trend channel moving average – the level that has been successfully in repelling price action over the past few months. As you can see, so far, setbacks to this level turned out to be buying opportunities. So, if history repeats itself, then we could see at least an attempt to rally over next couple of days.
On the same token, a failure to hold above the trend channel moving average, currently at 87.44, would mark an end to the massive run in the Japanese Yen.
Immediate resistance is at the lower edge of the pink band, just above 89. Above it, a more significant resistance lies at the red band around 91-93
Chart 1.3 – S&P 500 index (daily)
The overall technical outlook shifted to bullish. Last changed May 10 from neutral. As for strategy, traders should consider long gold and stocks (see area “A” in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
After weeks of trading in a well-defined downtrend, market is about to see a major move. As show, the S&P tested and bounced off support at the trend channel moving average. The index exceeded resistance near 2065 on Tuesday. Over the next few days, traders should monitor trading behavior as the 2085-2100 zone is tested as resistance. If the February rally were to continue, the S&P must break through 2100 in order to maintain upside momentum.
For now, the trend channel moving average, currently at 2050, represents key support. As long as that support holds, the path of least resistance remains higher.
(By：Michelle Mai for Capital Essence)
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