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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday April 7, 2017.
Stocks closed higher but well off session highs Thursday after President Donald Trump said he’s willing to act alone on North Korea if China does not step up ahead of his meeting with China President in Florida. For the day, the Dow Jones industrial average rose 14.80 points, or 0.07 percent, to close at 20,662.95. The S&P gained 4.54 points, or 0.19 percent, to end at 2,357.49. The Nasdaq composite advanced 14.47 points, or 0.25 percent, to close at 5,878.95. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 3.88 percent to 12.39.
China Yuchai International Limited (CYD) was a notable winner Thursday, jumped 2.92 percent on strong volume to 18.65. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CYD suggests that the stock could climb above 20 in the coming days. Just so that you know, initially profiled in our July 5, 2016 “Swing Trader Bulletin” CYD had gained about 71% and remained well position. Below is an update look at a trade in CYD.
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 – China Yuchai International Limited. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates CYD as a Buy. The overall technical outlook remains Bullish. Last changed February 22, 2017 from neutral.
CYD made a strong reversal higher Thursday. Momentum indicator shifted higher from near oversold zone, allowing additional upside probing. In the near term it is certainly possible that CYD breaks out to new 52-week high. Perhaps the positive Money Flow measure is the best illustration of the bulls’ case. A breakout above 18.98 has a measured move to 20.50, based on the 127.2% Fibonacci extension of the late 2016 upswing.
Short-term traders could use the late March low of 17 as the logical level to measure risk against.
SPDR S&P Pharmaceuticals ETF (XPH) attracted strong buying support Thursday following report that House Republican leaders, looking to jump-start their floundering effort to repeal and replace Obamacare. And there are more gains in store for this ETF, according to our “U.S. Market Trading Map”. Below is an update look at a trade in XPH.
Chart 1.2 – SPDR S&P Pharmaceuticals ETF (daily)
our “U.S. Market Trading Map” is looking at XPH from a Buy side. The short-term technical trend shifted to weak bull from neutral on April 6, 2017. Over the past few days, XPH has been trending lower in a short-term corrective mode as it works off the overbought conditions. The correction found support near the 38.2% Fibonacci retracement of the late 2016 downswing. Thursday’s breakout had helped clear resistance at the late March falling trend line, suggesting that XPH might have switched to a new upswing. Money Flow measure held firmly above the zero line since the ETF reached an interim low in late January, indicating there was little selling pressure. This is a bullish development, supporting further upside follow-through and a test of 42.80-43.30, based on the March high and the 61.8% Fibonacci retracement. A breakout above 43.30 has a measured move to the August 2016 high, just below 48.
With respect to key levels, XPH has minor resistance near 41. Short-term traders could use that level as the logical level to measure risk against.
Chart 1.3 – S&P 500 index (daily)
Short-term technical outlook remains neutral. Last changed April 3, 2017 from bullish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
For four consecutive sessions the S&P has been basing sideways using the trend channel moving average as support. Theoretically, the longer the index rides this support, the weaker it becomes. Adding to concerns is the Money Flow measure which began sloping lower in mid-March and dropped below the zero line following Wednesday’s massive selloff. This is an intermediate-term bearish development.
As mentioned, traders should monitor trading behavior near the trend channel moving average, currently at 2345. We’d turn particular bearish if the index close twice below that level. A break below 2345 has a measured move to 2300-2280, which we’ve determined using our proprietary trading system.
Short-term trading range: 2345 to 2378. S&P has minor support near 2345. A failure to hold above that level suggests shows that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level. The result is that the decline has a clear run down to the next support level at 2300. Immediate resistance is around 2378. A sustain breakout above 2378 has a measured move to the March high of 2400.
Long-term trading range: 2314 to 2409. Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within the 95 points range.
Bottom line, S&P continues basing sideway as traders wondered whether more gain is warranted given the massive advance over the past months. Given the downward shifted in momentum and Money Flow measure, odds favor an intermediate trend shift lower.
(By：Michelle Mai for Capital Essence)
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