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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday September 21, 2016.
We’ve noted in the previous Market Outlook that: “apparently, market is due for a big move. Monday’s trading action suggested that the path with least resistant is still lower. As mentioned, keep an eye on the week old pennant as these patterns tend to resolve in the direction of existing trend. S&P has 2135 to trade against it. If that were to break, it could see 2100 next, but we do not expect any big move prior to the FOMC announcement, which is scheduled to release on Wednesday afternoon.” As anticipated, stocks closed mostly flat after a choppy session as traders awaited monetary policy decisions from the Federal Reserve and the Bank of Japan.
For the day, the Dow Jones industrial average rose 9.79 points, or 0.05 percent, to close at 18,129.96. The S&P 500 gained 0.64 points, or 0.03 percent, to end at 2,139.76. The Nasdaq advanced 6.33 points, or 0.12 percent, to 5,241.35. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.51 percent to 15.92.
Notably, Intuitive Surgical Inc (ISRG) bucked the overall weakness, rose 0.77% on strong volume to 698.87. This is bullish from a technical perspective. In fact, a closer look at the daily chart of ISRG suggests that the stock could climb up to test key price level near 780 in the coming days. Just so that you know, initially profiled in our February 2, 2016 “Swing Trader Bulletin” ISRG had gained about 29% and remained well position. Below is an update look at a trade in ISRG.
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 – Intuitive Surgical Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates ISRG as a Buy. The overall technical outlook remains bullish. Last changed September 15, 2016 from bearish.
ISRG has been on a tear in recent days after the early September correction found support near the bottom of its short-term trading range. With an exception of a brief pullback in mid-September, Money Flow measure held mostly above the zero line since the stock reached an interim low in late 2015. This is a bullish development, indicating there was little selling interest. So, it seems to us that this rally could carry ISRG above the July high near 720 and up to the next level of resistance at the 127.2% Fibonacci extension of the February-July upswing near 780.
Support is around 670. 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 neutral. Last changed September 13 from bullish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
Following the massive selloff in early September, S&P has been coiled into a tight trading range as it worked off the extreme oversold condition. Money Flow measure trended lower from below the zero line, indicating a negative net demand for stocks. That could be setting up for a new leg lower.
Over the next few days, traders should monitor trading behavior near the lower end of the green band, around 2135. A close below that level suggests that the one week pennant has resolved itself into a new downswing with initial downside target of 2100.
For now, the upper end of the green band, currently at 2152, represents key resistance. A close above that level will bring the trend channel moving average, currently at 2168, into view.
In summary, we wouldn’t look too much into Tuesday action because it keeps S&P within its one-week pennant trading pattern. The period of consolidation has helped alleviate widespread short-term oversold conditions. We remain near term neutral/negative for S&P as we believe market vulnerable to some downside retracement.
(By：Michelle Mai for Capital Essence)
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