Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday January 20, 2017.
We’ve noted in the previous Market Outlook that: “S&P remains in a consolidation phase that reflects an indecisive market as we approach the inauguration. While near-term risk is greater to the downside, trading sentiment remains strong so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.” As anticipated, after hit a brief intraday high of 2,274.33 in five minutes into Thursday session, the S&P sold off steadily to 2,258.41 before the buy-the-dippers stepped in near the close and pushed the index off the intraday low. For the day, the bench mark gauge dropped 8.20 points, or 0.36 percent, to end at 2,263.69. The Dow Jones industrial average fell 72.32 points, or 0.37 percent, to close at 19,732.40. The Nasdaq composite dropped 15.57 points, or 0.28 percent, to close at 5,540.08. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.4 percent to 12.78.
CSX Corp (CSX) was a notable winner Thursday, leaped 23.4 percent to 45.51 – an all-time high, following report that Hunter Harrison is stepping down as CEO of Canadian Pacific Railway and partnering with activist investor Paul Hilal in an effort to put Harrison into CSX’s senior management. This is definitely a positive sign going forward. In fact, a closer look at the daily chart of CSX suggests that the stock could climb above 64 after the downward trend halted. Just so that you know, initially profiled in our March 1, 2016 “Swing Trader Bulletin” CSX had gained about 89% 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. The overall technical outlook remains Bullish. Last changed January 19, 2017 from neutral.
CSX has been on a tear in recent days following the early January bullish breakout above the December high.
Thursday’s bullish breakout had helped clear resistance at the 127.2% Fibonacci extension, clearing an important hurdle based on Fibonacci levels. Money Flow measure held above the zero line since early November, indicating there was little selling interest. This is a bullish development, supporting further upside follow-through and a test of resistance at the 261.8% Fibonacci extension, just above 64. Resistance stands in the way of continue rally is at the 161.8% Fibonacci extension, around 47.50.
Support is around 39. 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”]
S&P sold off sharply after recent rally attempt ran out of steam near the lower end of the pink band, or Tuesday’s breakdown point. As mentioned, that level is significant in charting terms. A failure to close above it on a weekly basis might herald further short-term losses. In fact, current trading action is similar to last September, in which the S&P fell below the pink band and traded below that level before a significant pullback developed.
Short-term trading range: 2255 to 2265. S&P has minor support near 2255. If the November rally were to continue, the index must hold and bounce off that level. A failure to hold above 2255, signify a bearish breakdown and a test of the trend channel moving average, currently at 2229, could follow shortly. For now, 2265 represents key price level. A sustain breakout above that level could trigger upside follow-through and a retest of 2275-2282.
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, short-term momentum continues to deteriorate as the S&P remains bound by a consolidation phase. 2255 is the line in the sand. A breakdown below that level is likely to determine the next tradable move for the market.
(By：Michelle Mai for Capital Essence)
© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.
