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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday January 19, 2017.
We’ve noted in the previous Market Outlook that: “market internal has been deteriorated following recent decline. Short-term momentum is weak, but positive Money Flow measure could help minimize downside risk.” As anticipated, S&P traded lower in early Wednesday session, hit its -0.20% intraday low five minutes into the session and then recovered. A small rally in the final hour lifted the index to its modest closing gain, rose 4 points, or 0.18 percent, to end at 2,271.89. The Dow Jones industrial average fell 22.05 points, or 0.11 percent, to close at 19,804.72. The Nasdaq composite rose 16.93 points, or 0.31 percent, to end at 5,542. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 5.14 percent to 12.48.
Steel Dynamics Inc. (STLD) was a notable winner Wednesday, surged 4.66% to 37.27. This is bullish from a technical perspective. In fact, a closer look at the daily chart of STLD suggests that the stock could climb above 46 after the downward trend halted. Just so that you know, initially profiled in our June 3, 2016 “Swing Trader Bulletin” STLD had gained about 50% and remained well position. Below is an update look at a trade in RAI.
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 – Steel Dynamics Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates STLD as a Buy. The overall technical outlook remains Bullish. Last changed January 18, 2017 from neutral.
Over the past few weeks, STLD has been trending lower in a short-term corrective mode as it worked off the overbought conditions. The December correction tested and respected at the trend channel moving average (as represents by the white line in the chart). Wednesday’s bullish breakout had helped clear resistance at the January falling trend line, signify resumption of the January 2016 upswing. Money Flow measure held above the zero line since the stock reached an interim low in September, indicating there was little selling interest. This is a bullish development, supporting further upside follow-through and a test of resistance at the 127.2% Fibonacci extension, around 46.80. Resistance stands in the way of continue rally is at the December high, around 40.
Support is around 36. 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 basing sideways near the lower end of the pink band after failing below that level on Tuesday. Short-term momentum has weakened and overbought conditions are widespread enough to suggest that the pullback will continue this week. Right now the most important level is watch is the lower end of the pink band, around 2273. That level is significant in charting terms. A failure to close above that level on a weekly basis might herald further short-term losses. In fact, current trading action is similar to last September, in which the S&P fell below the pink band and traded below that level before a significant pullback developed.
Short-term trading range: 2265 to 2273. S&P has minor support near 2265. If the November rally were to continue, the index must hold and bounce off that level. A failure to hold above 2265, signify a bearish breakdown and a test of the trend channel moving average, currently at 2226, could follow shortly. For now, 2273 represents key price level. A close above that level could trigger acceleration toward the January high, around 2282.
Long-term trading range: 2200 to 2300. A close above 2300 on a weekly closing basis signify a bullish breakout with upside target around 2400 but for now it looks firm.
In summary, S&P remains in a consolidation phase that reflects an indecisive market as we approach the inauguration. While near-term risk is greater to the downside, trading sentiment remains strong so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.
(By：Michelle Mai for Capital Essence)
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