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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday July 27, 2016.
We’ve noted in the previous Market Outlook that: “trading behavior in the S&P remains constrained by well-established sideways pattern and shows little evidence of a sustainable change in trend.” As anticipated, S&P closed little change, up 0.70 points, or 0.03 percent, at 2,169.18. The Dow Jones industrial average closed 19.31 points lower, or 0.10 percent, at 18,473.75. The Nasdaq composite closed 12.42 points higher, or 0.24 percent, at 5,110.05. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.4 percent to 13.05
Caterpillar Inc. (CAT) was a notable winner Tuesday, soared 3.16% to 82.75 – a fresh 52-week high after the company reporting earnings that beat on both the top and bottom line. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CAT suggests that the stock could climb above 104 in the coming days. Just so that you know, initially profiled in our February 16, 2016 “Swing Trader Bulletin” CAT had gained more than 31% 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.
Over the past few days, CAT has been basing sideways near the range top as traders digested the late June massive run. Money Flow held firmly above the zero line, indicating there was little selling pressure. Tuesday’s bullish breakout had helped clear resistance at the range top, suggesting that the several-day range bound trading pattern had resolved itself into a new upswing.
Right now, the most important level to watch is the 61.8% Fibonacci retracement, just below 86. The bullish perspective is that a sustain advance above that level could trigger acceleration toward the 2014 high, around 104.
Support is around 78. 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”]
As expected, S&P rebounded nicely off support at the lower limit of its several-day consolidation phase. The fact that the index basing sideways as the market digests overbought conditions rather than correcting significantly lower is a positive development. Money Flow measure held near multi-month high, indicating a positive net demand for stocks. These elements had increased the probability that S&P will break out from current trading range as soon as it works off the overbought conditions.
Near term, the market has carved out key short-term resistance and support levels for traders to monitor. For now, 2176 represents key resistance area. A sustain advance above that level could trigger acceleration toward 2200, which we’ve determined using the range top.
For now, 2160 represents key support. A failure to hold above this level will break the sideways trading pattern, suggesting that the next leg is lower, and we’re looking at 2100, based on the trend channel moving average. This area is too big and too important. It won’t go down without a fight. With this in mind, we’d consider increase exposure into any pullback toward this area in anticipation of a substantial rally in the coming months.
In summary, based upon recent trading actions, S&P is near the end of a short-term consolidation phase. The fact that the index had managed to hold on to most of the late June massive gains, indicating an internal strength. This is a positive development that could allow for a stronger finish this week.
(By：Michelle Mai for Capital Essence)
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