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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday April 25, 2016.
We’ve noted in the previous Market Outlook that: “Thursday’s decline marked a loss of momentum that is a setback for the market. Nevertheless, the overall technical backdrop remains bullish, so we’d consider purchase stocks during declines in the market and stay bullish as long as S&P holds above 2075.” As anticipated, stocks sold off in early Friday trading session that saw the S&P traded as low as 2,081.20 before buyers stepped in and pushed prices off the intraday low. For the day, the bench market gauge gained 0.10 points, or 0.00 percent, at 2,091.58. The Dow Jones industrial average closed up 21.23 points, or 0.12 percent, at 18,003.75. The Nasdaq composite closed down 39.66 points, or 0.8 percent, at 4,906.23. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 5.23 percent to 13.22.
CSX Corp. (CSX) was a notable winner Friday, jumped 2.72% on strong volume to 27.53 a new YTD high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CSX suggests that the stock could climb above 30 in the coming days. Just so that you know, initially profiled in our March 1, 2016 “Swing Trader Bulletin” CSX had gained more than 14% and remained well position. Below is an update look at a trade in CSX.
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 – CSX Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates CSX as a Buy. CSX has been on a tear in recent days after the March correction found support near the trend channel moving average (as represents by the white line in the chart). Friday’s upside breakout had helped clear resistance at the March high, signals resumption of the January upswing. Money Flow measure held firmly above the zero line since the stock reached an interim low in early April, indicating there was little selling pressure. This is bullish and supported further upside follow-through that projects to 29, based on the 50% Fibonacci retracement, at minimum but has an overshot target near 30.70, based on the 61.8% Fibonacci retracement and the November 2015 high.
Key support is at around 26.50. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Tech stocks sold off sharply Friday following Microsoft’s and Google’s parent Alphabet’s disappointed earnings reports. As such, the Technology Select Sector SPDR Fund (XLK) fell 1.74% to 43.44. Below is an update look at a trade in XLK.
Chart 1.2 – Technology Select Sector SPDR Fund (daily)
Our “U.S. Market Trading Map” was looking at XLK from a sell side back in April 19, 2016. The near-term technical outlook shifted to Neutral from bullish following recent decline. Friday’s bearish breakdown had set the stage for a test of the trend channel moving average, currently at 42.74. Money Flow measure trended lower but still above the zero line, indicating a positive net demand. So, it should not be surprising to see XLK rebound from that level.
Immediate resistance is at the lower edge of the pink band, around 44.30. Although not expected at this moment, a close above that level will invalidate the bearish signal and trigger a short-covering rally that targets the red band, around 46-47.60
Chart 1.3 – S&P 500 index (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates the S&P as a Buy. Following mid-April impressive rally, the market is currently undergoing a short-term downside correction, which is taking place within a context of an overall bullish trading environment (see area “A” in the chart). Nevertheless, current Market Climate is characterized by an aggressive with a low volatility trading environment that had historically been positive for stocks. With this in mind, we would consider increase exposure into additional weakness, which we think could take the S&P closer to the lower edge of the pink band, just above 2070.
As usual we must stress out that a failure to hold above 2070 would indicate a shift in sentiment that would set the S&P up for further losses. Such a drop would indicate that the market isn’t satisfied to test the lows and a much deeper slide should be expected.
As for resistance, there is a strong band of resistance between 2103 and 2116, based on the October-November 2015 highs. A sustain advance above 2116 will set the stage for a test of the all-time high of 2134. That level roughly corresponds with the lower edge of the red band.
In summary, our near-term work on price pattern and momentum suggested that the S&P had entered a short-term correction phase that could last about 2 to 5 trading sessions. Nevertheless, the overall technical backdrop remains bullish so pullback will present a buying opportunity, while selling into strength may not be the best strategy in a market considered likely to bounce back.
(By：Michelle Mai for Capital Essence)
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