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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday November 28, 2016.
We’ve noted in the previous Market Outlook that: “S&P extending short-term overbought condition for a third consecutive session. This is a bullish development, indicating an internal strength. Under such circ*mstances, traders should consider buying into short-term market dips in anticipation of a substantial year-end rally.” As anticipated, shot to a new record Friday, closing 0.4 percent higher to end at 2,213.35. The Dow Jones industrial average gained 68.96 points, or 0.36 percent, to close at 19,152.14. The Nasdaq advanced 18.24 points, or 0.34 percent, to close at 5,398.92. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.72 percent to 12.34.
Wendys Co (WEN) was a notable winner Friday, jumped 1.80 % to 12.99 – a fresh 52-week closing high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of WEN suggests that the stock could climb above 16 in the coming days. Just so that you know, initially profiled in our August 24, 2016 “Swing Trader Bulletin” WEN had gained more than 30% and remained well position. Below is an update look at a trade in WEN
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 – Wendys Co. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates WEN as a Buy. The overall technical outlook remains bullish. Last changed October 7, 2016 from neutral.
After correcting just over 38% from the 2015 peak and meeting anticipated support at the important Fibonacci retracement, WEN rebound has taken the stock above the multi-year high and toward the 127.2% Fibonacci extension. Money Flow measure surged to highest level since 2014, indicating traders are getting aggressive in the expectation of higher prices. This is a bullish development, supporting a rapid breakout above the 13.40, based on the 127.2% Fibonacci extension, and up to the next level of resistance at the 161.8127.2% Fibonacci extension, just above 16.
Support is around 12. 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 extending short-term overbought condition, closing above the lower end of the red band for a fourth consecutive session. Money Flow measure trended higher from above the zero line, indicating a positive net demand for stocks. This is a positive development, suggesting that overbought conditions can likely be sustained for 2 to 5 days before giving way to a pullback. However, the overall technical backdrop remains positive so after a small dip, expect a year end rip. With that said, once the S&P falls to 2200-2180, traders should buy it in anticipation of a substantial rally to our year-end price target of 2260.
Short-term trading range: 2200 to 2222. A failure to hold above 2200 will bring secondary support at 2180 into view but for now it looks firm. S&P has minor resistance near 2222. A close above that level could trigger acceleration toward the range top, currently at 2232.
Long-term trading range: 2168 to 2260. A close below 2168 on a weekly closing basis signify a bearish trend reversal and a retest of the important sentiment 2100 should expected but for now it looks firm.
Strategy: long (buy the dips). Traders should buy into any pullback toward the lower end of the range and sell (or at least take some profits) near the upper end of the range. Stop (cut loss) if S&P closes below the lower end of the range.
In summary, while the S&P could continue to drift higher as trading sentiment remains strong, the overbought condition suggested that upside momentum might not sustain without at least a short-term breather. So, traders must be very careful about initiate new positions at this stage of the rally. As for strategy, traders should consider buying into market dips rather than chasing breakout.
(By：Michelle Mai for Capital Essence)
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