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 October 12, 2016.
Stocks closed sharply lower on Tuesday as lower oil prices and rising Treasury yields triggered a large-scaled selloff. Also contributed to the overall pessimism was Alcoa’s weaker-than-expected quarterly results. For the day, the Dow Jones industrial average fell 200.38 points, or 1.09, to close at 18,128.66. The S&P 500 dropped 26.93 points, or 1.24 percent, to end at 2,136.73. The Nasdaq shed 81.89 points, or 1.54 percent, to 5,246.79. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, soared 14.8 percent to 13.38.
Notably, Molson Coors Brewing Co (TAP) bucked the overall weakness, closed slightly higher at 109.84. This is bullish from a technical perspective. In fact, a closer look at the daily chart of TAP suggests that the stock could climb above 128 after the downward trend halted. Just so that you know, initially profiled in our April 11, 2016 “Swing Trader Bulletin” TAP had gained about 18% and remained well position. Below is an update look at a trade in TAP.
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 – Molson Coors Brewing Co. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates TAP as a Buy. The overall technical outlook remains bullish. Last changed August 22, 2016 from bearish.
Tuesday’s upside follow-through confirmed Monday’s bullish breakout signal. Money Flow measure held firmly above the zero line since the stock reached an interim low in late July, indicating there was little selling pressure. this is a bullish development, supporting further upside follow-through and a test of key price level just above 128, based on the 161.8% Fibonacci extension of the August 2015 to June 2016 upswing. Resistance stands in the way of continue rally is at the 127.2% Fibonacci extension, just below 115.
Support is around 106. 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 shifted to neutral. Last changed October 11 from bullish (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
S&P broke key support at the September rising trend line, signify a bearish reversal. Money Flow measure trended lower from below the zero line, indicating an increase in selling pressure. This is a negative development but let’s notice that the index is fast approaching the bottom of its short-term trading range, as represents by the dark-green band in the chart. As it was the case of late, pullbacks to that area have turned out to be buying opportunities. With that said, once the S&P falls to 2130-2113, we think short-term traders should buy it in anticipation of a substantial rally to the August high, just below 2200.
Immediate resistance is around 2144. A close above that level will invalidate Tuesday’s bearish signal and putting the index back into the sideways trading pattern that has dominated the market since early September.
In summary, S&P broke key support Tuesday, suggesting that the 6-week symmetrical triangle pattern had resolved itself into a new downswing. Although seemingly vulnerable to further weakness, the overall technical backdrop remains bullish so we would consider increase upside exposure into short-term market dips as we like the setup in the market that has consistently bounced back.
(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.
