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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday August 24, 2016.
We’ve noted in the previous Market Outlook that: “S&P stuck in a holding pattern as traders wonders whether more gain is warranted given the massive advance over the past months…On balance, we remain bullish on the S&P and looking to buy into market dips.” As anticipated, stocks built on to Monday late day rally that saw the S&P briefly gained about 10 points in early trade before sellers stepped in and pushed prices lower. For the day, the bench mark gauge added 4.26 points, or 0.2 percent, to 2,186.9. The Dow Jones industrial average closed 17.88 points higher, or 0.1 percent, at 18,547.3. The Nasdaq advanced 15.47 points, or 0.3 percent, to 5,260.08. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 0.9 percent to 12.38.
Big Lots Inc. (BIG) was a notable winner Tuesday, jumped 4.24% on strong volume to 55.56. This is bullish from a technical perspective. In fact, a closer look at the daily chart of BIG suggests that the stock could climb above 65 after the downward trend halted. Just so that you know, initially profiled in our June 27, 2016 “Swing Trader Bulletin” BIG had gained about 13% and remained well position. Below is an update look at a trade in BIG.
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 – Big Lots Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates BIG as a Buy. The overall technical outlook remains bullish. Last changed August 23, 2016 from neutral.
Over the past few days, BIG has been trending lower in a short-term corrective mode as traders digested the early August rally. The correction tested and respected support at the trend channel moving average (as represents by the white line in the chart). That level roughly corresponds with the July breakout point. Tuesday’s upside breakout had helped clear resistance at the August falling trend line, signaled resumption of the January upswing. Money Flow measure held firmly above the zero line throughout recent correction, indicating there was little selling pressure. This is a bullish development, supporting further upside follow-through and a rapid advance above 58.60, based on the 127.2% Fibonacci extension, and up to the next level of resistance at the 161.8% Fibonacci extension around 65.50.
Support is at the trend channel moving average, currently at 52.40. 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 June 29 from bearish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
S&P rebounded nicely after recent pullback was met with a new wave of buying interest. However, Tuesday’s quick run is showing some signs of exhaustion near the upper limit of the 3-week trading range, noting a struggle for the S&P to get far past the 2190 level. This is a bearish development but Money Flow still hovers near multi-month high, indicating a positive net demand for stocks. This could help putting a short-term floor under the market.
For the near term, the market has carved out key short-term resistance and support levels for traders to monitor. For now, 2200 will continue to act as price magnet. A close above it on a daily basis would signify a breakout that support further upside follow-through and a test of the lower end of the red band, around 2230.
While 2200 is acting as resistance, 2175 is currently the main level of support. That level is significant in charting terms. It roughly corresponds with the lower edge of the pink band. It was where the market peaked in July. This history indicated an important role in terms of support. A failure to hold above that
In summary, S&P struggled to get far past the 2190 level. Nevertheless, the overall technical backdrop remains bullish so downside risk could be limited. There is a high probability of rapid rallies and retreats between 2175-2193. Near-term, traders can play the range. However, the market is volatile and tight stops are advisable.
(By：Michelle Mai for Capital Essence)
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