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 Wednesday November 16, 2016.
We’ve noted in the previous Market Outlook that: “S&P shifted to consolidation mode as traders digested the election massive rally. The fact that the index managed to hold on to all of the gains in the face of extreme overbought conditions indicated an internal strength. As for strategy, pullback will present a buying opportunity, while selling into strength may not be the best strategy in a market considered likely to bounce back.” As anticipated, S&P ended recent losing streak, closed higher Tuesday amid strength in energy and technology stocks. For the day, the bench mark gauge closed up 16.19 points, or 0.75 percent, at 2,180.39. The Dow Jones industrial average closed up 54.37 points, or 0.29 percent, at 18,923.06. The Nasdaq composite closed up 57.23 points, or 1.1 percent, at 5,275.62. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 7.67 percent to 13.37.
McDermott International (MDR) soared to new 52-week high Tuesday, up 4.01 percent to 5.97. This is bullish from a technical perspective. In fact, a closer look at the daily chart of MDR suggests that the stock could climb above 9 in the coming days. Just so that you know, initially profiled in our June 20, 2016 “Swing Trader Bulletin” MDR had gained more than 27% and remained well position. Below is an update look at a trade in MDR.
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 – McDermott International. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates MDR as a Buy. The overall technical outlook remains bullish. Last changed November 9, 2016 from neutral.
MDR has been on a tear in recent days after the October correction found support at the trend channel moving average (as represents by the white line in the chart). Tuesday’s upside follow-through confirmed last week’s bullish breakout above the range top. Money Flow measure surged to multi-month high, indicating an increase in buying pressure. This is a bullish development, supporting further upside follow-through and a test of the 2014 high, just above 9. Close above 6, based on the late 2015 high, will confirm this.
Support is around 5. 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 November 14 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 closed above the lower border of the pink band for the first time since August. The index has been stuck in a particularly tight range for almost four months. Tuesday’s upside breakout is seen as a positive technical catalyst that is reflective of improved short-term momentum that support further upside follow-through and a retest of the August high, just below 2200. That level roughly corresponds with the red band, currently at 2188-2210.
Traders however, must be mindful that Money Flow measure trended higher but still below the zero line, indicating a negative net demand for stocks. Additionally, market is short-term overbought following last week massive rally. These elements suggested that upside gains could be limited.
Immediate support is at the lower border of the pink band, currently at 2167. Below it, a more significant support lies at the trend channel moving average, currently at 2145. Unless there is a close below that level, the near-term technical bias is to the upside.
In summary, reflexive bounce unfolded Tuesday, leading to an upside breakout above the key resistance. Short-term momentum has improved but overbought conditions could minimize upside follow-through.
(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.
