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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday March 15, 2017.
We’ve noted in the previous Market Outlook that: “S&P is in a bullish digestion period. The overall technical backdrop in term of price structure and momentum still favors the bullish case. So buying on dips remains the most profitable trading strategy.” As anticipated, stocks opened lower in early Tuesday session that saw the S&P traded as low as 2,358.18 before buyers stepped in and pushed prices off the intraday low. For the day, the bench mark gauge closed down 8.02 points, or 0.34 percent, at 2,365.45. The Dow Jones industrial average closed 44.11 points lower, or 0.21 percent, at 20,837.37. The Nasdaq composite ended 18.97 points lower, or 0.32 percent, at 5,856.82. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged 8.37 percent to 12.30.
Methode Electronics Inc. (MEI) was a notable winner Tuesday, rose 1.5 percent on strong volume to 44.10. This is bullish from a technical perspective. In fact, a closer look at the daily chart of MEI suggests that the stock could climb above 50 after the downward trend halted. Just so that you know, initially profiled in our January 13, 2017 “Swing Trader Bulletin” MEI had gained about 7% and remained well position. Below is an update look at a trade in MEI.
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 – Methode Electronics Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates MEI as a Buy. The overall technical outlook shifted to Bullish. Last changed March 10, 2017 from neutral.
Over the past few days, MEI had been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction found support near the trend channel moving average (as represents by the white line in the chart). Tuesday’s upside breakout had helped clear resistance at the late February falling trend line, signaled resumption of the October 2016 upswing. Money Flow measure held firmly above the zero line since the stock reached an interim low in October, indicating there was little selling interest. This is a positive development, supporting further upside follow-through and a test of key technical resistance near 50. That level roughly corresponds with the 161.8% Fibonacci extension. Resistance stands in the way of continue rally is at the 127.2% Fibonacci extension, just below 48.
Support is around 42. 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 8, 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”]
S&P continues basing sideways using the lower boundary of the pink band as support. Money Flow measure holds above the zero line, indicating a positive net demand for stocks. This could help putting a short-term floor under the market.
S&P is developing a consolidation pattern between 2353 and 2378. The development of the new uptrend starts when the S&P moves out of the congestion band. The new uptrend is confirmed when the index is able to hurdle and sustain above 2378. That, if happen, could trigger acceleration toward the important sentiment 2400 mark.
Short-term trading range: 2353 to 2400. For now, 2400 represents key resistance. 2353 is the line in the sand. A failure to hold above that level suggests that a retest of 2300 is needed before the correction is completed.
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? S&P stuck in a holding pattern as traders wonders whether more gain is warranted given the massive advance over the past months. A close above 2378 on a weekly basis would signify a breakout and bullish reversal, supporting upside follow-through in the weeks ahead. On balance, we remain bullish on the S&P and looking to buy into market dips.
(By：Michelle Mai for Capital Essence)
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