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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday February 27, 2017.
We’ve noted in the previous Market Outlook that: “while the market could continue to drift higher as trading sentiment remains strong, our near-term work on momentum tells us to expect a pause in the next few days as overbought conditions are absorbed.” As anticipated, S&P opened lower Friday and oscillated around a narrow range until buyers stepped in near the close and pushed prices higher. For the day, the bench mark gauge gained 3.53 points, or 0.15 percent, to end at 2,367.34. The Dow Jones industrial average rose 11.44 points, or 0.05 percent, to close at 20,821.76. The Nasdaq composite advanced 9.80 points, or 0.17 percent, to close at 5,845.31. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 2.05 percent to 11.47.
Pegasystems Inc. (PEGA) was a notable winner Friday, soared 8.4 percent on strong volume to 43.25 – a new high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of PEGA suggests that the stock could climb above 47 in the coming days. Just so that you know, initially profiled in our January 25, 2017 “Swing Trader Bulletin” PEGA had gained about 14% and remained well position. Below is an update look at a trade in PEGA.
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 – Pegasystems Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates PEGA as a Buy. The overall technical outlook remains Bullish. Last changed February 24, 2017 from neutral.
Over the past few days, PEGA had been basing sideway near the range top as traders wondered whether more gain is warranted given the massive advance over the past months. Money Flow measure held mostly above the zero line since the stock reached an interim low in August 2016, indicating there was little selling pressure. Friday’s breakout had helped clear resistance at the range top and the 127.2% Fibonacci extension of the 2016 upswing, signify a bullish breakout. This is a bullish development, supporting further upside follow-through and a rapid advance toward the 161.8% Fibonacci extension, just above 47.
Support is around 41.50. 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 February 9, 2017 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 rebounded nicely after early Friday selloff found support at the lower boundary of the red band. Money Flow measure trended higher from above the zero line, suggesting that the bulls were much more aggressive as price rallied than bears were as it declined and that net demand was very strong. This is a positive development but let’s notice that marked is overbought in multi timeframes so it should not be surprise to see further consolidation as overbought conditions are absorbed.
Short-term trading range: 2350 to 2390. The upper boundary of the red band, around 2390, represents key resistance. A trade above that level often marked short-term market top. The lower boundary of the red band, around 2350, represents minor support. A close below that level will bring the important sentiment 2300 mark into view. For now, 2300 is the line in the sand. A close below that level indicates that an extreme change in the sentiment has occurred and increase the probability of a significant downside correction.
Long-term trading range: 2257 to 2345. S&P traded slightly above the upper boundary of its long-term trading range. Probability of a sustain breakout is extremely limited. For now, 2257 represents key support. A close below that level signals a full blow correction but for now it looks firm.
In summary, it is possible that the S&P 500 index is trapped within the 2350 to 2380 trading range as we’re heading into the window dressing period. Short-term traders could play the range. However, markets are volatile and tight stops are advisable.
(By：Michelle Mai for Capital Essence)
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