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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday March 21, 2017.
We’ve noted in the previous Market Outlook that: “a short-term consolidation interrupted last Wednesday’s massive rally in the S&P. Money Flow measure is holding well above the zero line which is positive for the intermediate term trend.” As anticipated, S&P closed lower but off intraday low Monday as traders digested comments from several Federal Reserve officials. For the day, the bench mark gauge dropped 4.78 points, or 0.2 percent, to end at 2,373.47. The Dow Jones industrial average fell 8.76 points, or 0.04 percent, to close at 20,905.86. The Nasdaq composite rose 0.53 points, or 0.01 percent, to close at 5,901.53. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 0.53 percent to 11.34.
II-VI Inc. (IIVI) was a notable winner Monday, surged 4.55 percent on strong volume to 36.75. This is bullish from a technical perspective. In fact, a closer look at the daily chart of IIVI suggests that the stock could climb above 47 after the downward trend halted. Just so that you know, initially profiled in our December 6, 2016 “Swing Trader Bulletin” IIVI had gained about 23% and remained well position. Below is an update look at a trade in IIVI.
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 – II-VI Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates IIVI as a Buy. The overall technical outlook remains Bullish. Last changed March 20, 2017 from bearish.
Over the past few weeks, IIVI had been trending lower in a corrective mode as it worked off the overbought conditions. The correction tested and respected support at the 38.2% Fibonacci retracement of the summer 2016 upswing. Monday’s breakout had helped clear resistance at February falling trend line, signaled resumption of the 2015-2016 upswing. Money Flow measure crossed above the zero line, indicating a positive net demand for the stock. This is a bullish development, supporting further upside follow-through that projects to 41 at minimum but has an overshot target near 47.50, based on the 127.2% Fibonacci extension.
Support is around 23. 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 neutral. 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”]
Over the past few days, S&P has been trending lower in a short-term corrective mode after last Wednesday’s rally ran out of steam near the important sentiment 2400 mark. Money Flow measure trended lower but still above the zero line, indicating a positive net demand for stocks. This could helped minimize widespread breakdowns.
Right now, the most important thing to watch is trading behavior near 2365. That level roughly corresponds with last week’s breakout point and the lower boundary of the pin band. It S&P closes below that level, it’s bearish. Technically speaking, when key support breaks, it usually begets more selling. The next downside level to watch is 2324, based on the trend channel moving average.
Short-term trading range: 2365 to 2400. For now, 2400 represents key resistance. That level roughly corresponds with the lower boundary of the red band. 2365 represents key support. A failure to hold above that level suggests that a retest of 2324-2300 is needed.
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? Pullback unfolded last week, leading to a test of the 2-conjoining support near 2365 in the S&P. Short-term momentum has weakened but trading sentiment remains strong. This could help minimize downside follow-through and widespread breakdowns. As for strategy, traders should consider increase exposure into market dips.
(By：Michelle Mai for Capital Essence)
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