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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday April 27, 2016.
We’ve noted in the previous Market Outlook that: “we expect upside follow-through to be limited by overbought conditions. With this in in mind, we would consider taking down exposure into additional strength.” As anticipated, stocks traded higher in early Tuesday session that saw the S&P traded as high as 2,096.87 before sellers stepped in and pushed prices of the intraday high. For the day, the bench market gauge closed up 3.91 points, or 0.19 percent, at 2,091.70. The Dow Jones industrial average closed up 13.08 points, or 0.07 percent, at 17,990.32. The Nasdaq composite closed down 7.48 points, or 0.15 percent, at 4,888.31. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.85 percent to 13.96.
American Superconductor Corp. (AMSC) was a notable winner Tuesday, surged 8.81% on strong volume to 9.76. This is bullish from a technical perspective. In fact, a closer look at the daily chart of AMSC suggests that the stock could climb above 12 in the coming days. Just so that you know, initially profiled in our March 22, 2016 “Swing Trader Bulletin” AMSC had gained about 27% and remained well position. Below is an update look at a trade in AMSC.
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 – American Superconductor Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates AMSC as a Buy. AMSC has been on a tear in recent days after the early March correction found support near the trend channel moving average (as represents by the white line in the chart). Tuesday’s upside breakout had helped clear resistance at the March high, signals resumption of the multi-month upswing. Money Flow measure held firmly above the zero line since the stock reached an interim low in December, indicating there was little selling pressure. This is bullish and supported further upside follow-through that projects to 12.40, based on the 50% Fibonacci retracement. Resistance stands in the way of continue rally is at the 38.2% Fibonacci retracement, around 10.20.
Key support is at around 8.60. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Chart 1.2 – 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 S&P 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.
As expected, the S&P moved up to test the important sentiment 2100 zone following Monday’s bullish reversal signal. This is a positive development but let’s notice that momentum indicator shifted lower from overbought zone, indicating an internal weakness.
There is a high probability that the S&P is developing a pullback and consolidation pattern between 2070 and 2111, based on the lower edge of the pink band and the April pivot high. There will be rapid rally and retreat. Traders should monitor trading behavior near the 2070 zone. As mentioned, a failure to hold above that level 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. Perhaps a retest of the trend channel moving average, currently at 2022.
A sustain advance above 2111, meanwhile, indicating that selling pressure is abating and buyers are in control of the market and a test of the red band, currently at 2137-2195, should follow shortly.
In summary, S&P stuck in a holding pattern as traders wondered whether more gain is warranted following massive V-shaped rally. It seems to us that the upper and lower limit of a short-term trading range has been set between the 2070 and 2111 levels. At some points, of course, the market will either break above or below that range. That, if and when it happens, should be a fierce move.
(By：Michelle Mai for Capital Essence)
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