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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday February 6, 2017.
We’ve noted in the previous Market Outlook that: “we wouldn’t look too much into Thursday’s trading action because it keeps the S&P within its short-term consolidation phase. Support is strong in the 2270 area and downside momentum does not appear strong enough to generate a decisive breakdown.” As anticipated, a better-than-expected job report sent stocks higher Friday that saw the S&P rose 16.57 points, or 0.73 percent, to end at 2,297. The Dow Jones industrial average gained 186.55 points, or 0.94 percent, to end at 20,071.46. The Nasdaq composite advanced 30.57 points, or 0.54 percent, to close at 5,666.77. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, sell 8.05 percent to 10.97.
Kennametal Inc. (KMT) was a notable winner Friday, surged 3.41 percent on strong volume to 37.96 – a fresh 52-week closing high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of KMT suggests that the stock could climb above 48 in the coming days. Just so that you know, initially profiled in our October 17, 2016 “Swing Trader Bulletin” KMT had gained about 33% and remained well position. Below is an update look at a trade in KMT.
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 – Kennametal Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates KMT as a Buy. The overall technical outlook remains Bullish. Last changed February 1, 2016 from neutral.
KMT has been on a tear in recent days after the late January correction found support near the 61.8% Fibonacci retreatment. Friday’s upside follow-though confirmed Thursday’s bullish breakout. Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure. Additionally, the fact that KMT had retraced more than 61.8% of its prior downswing, suggested that the entire trend will eventually retrace. So, it seems to us that this rally could carry KMT above 48, based on the 2014 high.
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”]
Looking at the daily chart of S&P, we can see that the index is still in consolidation, traded in a range of 2260-2300 since mid-January. The buy signal is still in place but we’d like to see more upward progression. Right now the most important thing to look for is a retest of 2300. A close above that level could trigger a massive short-covering, in which short sellers are scrambling to cover their positions. That, in turn, could fuel a sharp rally with target of 2313, based on the lower boundary of the red band. Buyers however, should aware that the prevailing negative divergence on the Money Flow measure is often associated with an unsustainable or failure breakout. The indicator did not confirm the late January breakout as it holds below the December peak. This bearish divergence warns that upside momentum is waning and a general caution strategy should be applied.
Short-term trading range: 2288 to 2300. For now, 2288 represents key support. A close below that level indicates that an extreme change in the sentiment has occurred. Below it, a more important support lies at the trend channel moving average, currently at 2255. The important sentiment 2300 represents key resistance. We’d turn particular bullish if the index closes twice above that level.
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, near-term technical outlook remains bullish and suggesting that we could see at least another pop to 2300. Buyers however, should be aware that the negative divergence on the Money Flow measure spells a set-up for a quick and painful weak-bull shakeout hence a general caution strategy should be applied.
(By：Michelle Mai for Capital Essence)
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