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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday August 22, 2016.
We’ve noted in the previous Market Outlook that: “S&P still has upward bias, support by short-term positive momentum but we expect resistance at the weekly high to remains largely intact. There is a high probability that market is in for a ‘range-bound’ trading environment. This is a rally and retreat environment. It is not a trending environment. Short-term traders can anticipate continued volatility with rapid up and down moves in the markets.” As anticipated, stocks ended a flat week on a similar note as early selling gave way to a partial rebound in afternoon action. The Dow Jones industrial average closed 45.13 points lower, or 0.24 percent, at 18,552.57. The S&P fell 3.15 points, or 0.14 percent, to close at 2,183.87. The Nasdaq fell 1.77 points, or 0.03 percent, to end at 5,238.38. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.79 percent to 11.34.
Knoll Inc. (KNL) was a notable winner Friday, rose 1.67% on strong volume to 25.59. This is bullish from a technical perspective. In fact, a closer look at the daily chart of KNL suggests that the stock could climb above 27 in the coming days. Just so that you know, initially profiled in our May 20, 2016 “Swing Trader Bulletin” KNL had gained about 12% and remained well position. Below is an update look at a trade in KNL.
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 – Knoll Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates KNL as a Buy. The overall technical outlook remains bullish. Last changed August 18, 2016 from neutral.
The first dominant feature on the chart is the rising trend starting in late June. The second dominant feature of the chart is the sideways consolidation between 24.41 and 26.08 since early July, which represents the digestion period. With an exception of the brief pullback in late June, Money Flow measure held mostly above the zero line since the stock reached an interim low in January 2016. This is a positive development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension of the January-June upswing around 27.70. A close above the early August high of 26.08 will confirm this.
Support is at 24.41. 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”]
Not much had changed since last update. S&P continues basing sideways, using the lower end of the pink band as support. The consolidation phase has helped alleviate widespread overbought conditions. Additionally, Money Flow measure hovers near multi-month high, indicating a positive net demand for stocks. These elements suggesting that the probability of a sharp decline is extremely limited.
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 level would signify a bearish breakout and a retest of the trend channel moving average, currently at 2134, should be expected.
In summary, we remain near-term ‘neutral/positive’ for S&P as we believe recent consolidation phase has helped alleviate widespread overbought conditions. However, resistance is strong in the 2190-2200 area, and short-term momentum does not appear strong enough to generate a decisive breakout. Short-term traders could play the range. However, markets are volatile and traders may prefer not to hold large positions overnight.
(By：Michelle Mai for Capital Essence)
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