Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday June 3, 2016.
We’ve noted in the previous Market Outlook that: “while more backing and filling between S&P’s 2100 and 2085 would not be a surprise, we continue to expect an eventual breakout to a new highs in the weeks ahead.” As anticipated, stocks closed at session highs Thursday, with S&P ended above 2,100 for the first time in the close since April 20, up 5.93 points, or 0.28 percent, to close at 2,105.26. The Dow Jones industrial average closed up 48.89 points, or 0.27 percent, at 17,838.56. The Nasdaq composite closed up 19.11 points, or 0.39 percent, at 4,971.36. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 4.01 percent to 13.63.
Central Garden & Pet Co (CENT) was a notable winner Thursday, jumped 2.57% on strong volume to 19.54 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CENT suggests that the stock is in upswing that projects to 21.50 at minimum but has an overshoot target over 25. Just so that you know, initially profiled in our February 3, 2015 “Swing Trader Bulletin” CENT had gained about 124% and remained well position. Below is an update look at a trade in CENT
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 – Central Garden & Pet Co. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates CENT as a Buy. The overall technical outlook remains bullish. Last changed May 4, 2016 from neutral.
CENT has been on a tear in recent days after the early May correction found support at the trend channel moving average (as represents by the white line in the chart). Money Flow measure held firmly above the zero line since the stock reached an interim low in January 2016, indicating there was little selling pressure. Thursday’s upside breakout had helped clear resistance at the range top, signals resumption of the October 2014 to October 2015 upswing that projects to 21.50, based on the 127.2% Fibonacci extension, at minimum but has an overshoot target of 25.50, based on the 161.8% Fibonacci extension.
Support is around 18. 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 May 24 from neutral (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
As expected, the index continues bouncing back and forth within the confines of the rising pink band. Despite the short-term overbought condition, market internals remains healthy, supporting near-term upside follow-through and a test of more important resistance in the 2111 zone, based on the April high and the lower edge of the red band.
Technically speaking, a trade into the red band indicates an extreme overbought condition, a situation that often precursor to a meaningful downside correction. With this in mind we’d consider taking down exposure into additional strength, which we think could take the S&P closer to 2111 before the rally falters.
As for support, there is a strong band of support between 2090 and 2085. A failure to hold above that level will bring the trend channel moving average, currently at 2068, into view. But for now, it looks firm.
In summary, the S&P is likely to reach the red band, or extreme overthought territory, this week for the first time since late March. Our near-term work on price pattern and momentum suggests strongly that the overbought conditions can be sustained for a few days, potentially allowing for a test of the 2111 zone before a significant pullback unfolds.
(By：Michelle Mai for Capital Essence)
© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.
