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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 27, 2017.
We’ve noted in the previous Market Outlook that: “S&P had confirmed a breakdown below the lower boundary of the pink band. Short-term momentum is weak but oversold conditions could help minimize immediate downside follow-through. We would be wary of a breakdown below the trend channel moving average.” As anticipated, S&P closed slightly lower Friday after a choppy trading session as Wall Street is worried that President Donald Trump and Congress’ inability to agree on a measure will derail promised tax cuts and regulatory relief. For the day, the bench mark gauge fell 1.98 points, or 0.08 percent, to end at 2,343.98. The Dow Jones industrial average fell 59.86 points, or 0.29 percent, to close at 20,596.72. The Nasdaq composite advanced 11.04 points, or 0.19 percent, to 5,828.74. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 1.22 percent to 12.96.
Intuitive Surgical Inc. (ISRG) was a notable winner Friday, rose 1.58 percent on strong volume to 758 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of ISRG suggests that the stock could climb above 800 in the coming days. Just so that you know, initially profiled in our February 2, 2016 “Swing Trader Bulletin” ISRG had gained about 40% 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 January 10, 2017 from neutral.
Over the past few days, ISRG has been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction tested and respected support at the prior March high. Friday’s upside breakout had helped clear resistance at the range top, signified resumption of the 2015-2016 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 a bullish development, supporting further upside follow-through and a test of 800, based on the 127.28% Fibonacci extension.
Support is around 744. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Dow Transportation Average got hit hard last week, down 2.4%, as traders are doubting they will get the pro-growth policies of tax reform and stimulus promised by President Donald Trump. The iShares Transportation Average ETF (IYT) has dropped for the past three weeks and closed at the lowest level since December 2016. Below is an update look at a trade in IYT.
Chart 1.2 – iShares Transportation Average ETF (daily)
As indicated in the above chart, our “U.S. Market Trading Map” was looking at IYT from a Sell side back in March 1, 2017. The daily chart of IYT shows that the ETF has been trending lower over the past few weeks and is trading below the January low of 161.15. Money Flow measure trended lower from below the zero line, indicating an increase in selling pressure. This is a negative development, suggested that a test of 155, based on the 38.2% Fibonacci retracement is needed before the correction is over. There is more important support in the 150 area, based on the 50% Fibonacci retracement.
Resistance is at the March falling trend line, near 164. A close above that level on a weekly basis would signify a breakout and bullish reversal.
Chart 1.3 – S&P 500 index (daily)
Short-term technical outlook remains neutral with a negative bias. Last changed March 16, 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”]
The daily chart of the S&P shows that it has been basing sideways, using the trend channel moving average after falling below the lower boundary of the pink band on Tuesday. Money Flow measure confirmed the March high, which is positive for the intermediate trend. Nevertheless, the indicator is moving closer to the zero line and looking vulnerable over the near term. A further correction of, say 1-2%, would take Money Flow measure below zero and S&P into intermediate-term corrective mode.
Over the next few day, the most important thing to watch is trading behavior near the trend channel moving average, currently at 2330. It S&P closes below that level, it’s bearish. Technically speaking, when key support breaks, it usually begets more selling. A failure to hold above 2330 would see an unwelcome pickup in downside volatility. The next downside level to watch is the sentiment 2300 mark.
Short-term trading range: 2330 to 2365. S&P has support near 2330. 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 near 2365-2370. A close above 2370 will turn the short-term trend up and a retest of the March high is likely.
Long-term trading range: 2300 to 2400. Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within the 100 point range, between 2300 and 2400.
What to do? Oversold conditions have returned on an intraday basis so a bounce cannot be ruled out this week. However, short-term momentum remains weak, and more climactic selling is needed to bring market internal measures to oversold extremes, therein signaling a tradable low. With this in mind, we’d look to reduce exposure into intraday rallies.
(By：Michelle Mai for Capital Essence)
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