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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday August 16, 2016.
Stocks rose to record highs once more Monday, as the NASDAQ 100 finally joined the NASDAQ composite, S&P and Dow in record territory. Contributed to the overall optimism was higher oil prices, which rose nearly 3 percent on more talk about a producer meeting and new data that shows a drawdown in U.S. inventories.
For the day, the Dow Jones industrial average rose 59.58 points, or 0.32 percent, to close at 18,636.05. The S&P 500 closed 6.10 points higher, or 0.28 percent, at 2,190.15. The Nasdaq rose 0.56 percent, or 29.12 points, to end at 5,262.02. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.25 percent to 11.81.
Caterpillar Inc. (CAT) was a notable winner Friday, jumped 1.39% to 84.15 – a fresh 52-week closing high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CAT suggests that the stock could climb up to test key price level near the 100 zone in the coming days. Just so that you know, initially profiled in our February 16, 2016 “Swing Trader Bulletin” CAT had gained more than 33% and remained well position. Below is an update look at a trade in CAT.
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 – Caterpillar Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates CAT as a Buy. The overall technical outlook remains bullish. Last changed July 8, 2016 from neutral.
CAT has been on a tear in recent days after recent correction found support near the late July breakout point. Money Flow measure held firmly above the zero line since the stock reached an interim low in May. Monday’s upside breakout had helped clear resistance at the July high, signaled resumption of the January upswing that projects to 100. That level roughly corresponds with the 161.8% Fibonacci extension.
Resistance stands in the way of continue rally is just below 87, or the 127.2% Fibonacci extension.
Support is at around 82. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Chart 1.2 – S&P 500 index (daily)
Near-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”]
Key technical development in Monday trading session was a close above 2187 – the upper limit of the short-term trading range that it’s been stuck in for the past week. The fact that S&P managed to close higher despite the overbought condition suggesting that the path with least resistance remains higher. This is a bullish development, supporting further upside follow-through and a test of the important sentiment 2200 mark. Perhaps the positive Money Flow measure is the best illustration of the bulls’ case.
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 retest of the range top, currently at 2270.
For now, 2187-2175 represents key support. A close below it would signify a breakdown and a retest of 2100 should be expected.
In summary, although overbought condition is keeping buyers at bay, the important sentiment 2200 mark will continue to act as price magnet. This could help putting a short-term floor under the market. As for strategy, traders should consider purchase stocks during short-term dips in the market and stay bullish.
(By：Michelle Mai for Capital Essence)
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