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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday March 7, 2017.
We’ve noted in the previous Market Outlook that: “current price structure suggested strongly that the market is taking a breather from its recent thrust to new highs. We remain near-term ‘neutral/positive’ for S&P as we believe the consolidation phase will help alleviate widespread overbought conditions. Support is strong in the 2350 area and downside 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.” As anticipated, S&P closed lower Monday amid increased geopolitical concerns. For the day, the bench mark gauge fell 7.81 points, or 0.33 percent, to end at 2,375.31. The Dow Jones industrial average fell 51.37 points, or 0.24 percent, to close at 20,954.34. The Nasdaq dropped 21.58 points, or 0.37 percent, to close at 5,849.17. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 2.55 percent to 11.24.
Kennametal Inc. (KMT) was a notable winner Monday, jumped 1.42 percent on strong volume to 38.55. This is bullish from a technical perspective. In fact, a closer look at the daily chart of KMT suggests that the stock could climb above 48 in the coming days. Just so that you know, initially profiled in our October 17, 2016 “Swing Trader Bulletin” KMT had gained about 34% and remained well position. Below is an update look at a trade in KMT.
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 – Kennametal Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates KMT as a Buy. The overall technical outlook remains Bullish. Last changed February 1, 2017 from neutral.
Over the past few days, KMT had been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction tested and respected support at the late February low. Money Flow measure held firmly above the zero line, indicating there was little selling interest. Monday’s massive bullish engulfing bar is a clear indication of demand overwhelming supply. This is a positive development, supporting further upside follow-through and a test of the 2014 high, just above 48. Resistance stands in the way of continue rally is at the February high, near 40.
Support is around 37. 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 fell below the lower boundary of the red band after climbed above that level last week, signify a breakdown and bearish reversal. However, support is strong near the 2370 zone. We’d turn particular bearish if the index closed twice below that level. With that said, consecutive daily closes below 2370 would confirm the bearish signal and set the stage for a test of the trend channel moving average, around 2300, with only minor support at 2350, based on the lower boundary of the pink band.
Short-term trading range: 2350 to 2400. The important sentiment 2400 mark represents key resistance. For now, 2350 represents minor support. A failure to hold above that level signals a short-term correction with short-term downside target of 2300.
Long-term trading range: 2300 to 2400. S&P retreated after recent test of the overhead resistance at the 2400 area was met with an aggressive wave of selling interest. For now, 2300 represents key support. A close below that level signals a full blow correction but for now it looks firm.
In summary, recent trading actions leaving the market in what looks to us like a back-and-forth consolidation of the late January massive rally. As the S&P approaches critical tipping point, we’re watching the next sell signal. The index could signal an extended downward trajectory, depending on how it closes over the next few days. If the market is going to find a bottom in the near term, we want to see the S&P rebounds off 2370.
(By：Michelle Mai for Capital Essence)
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