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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 31, 2017.
We’ve noted in the previous Market Outlook that: “S&P turned indecisive near key technical resistance. Our near-term technical bias on the index favors a short-term consolidation.” As anticipated, stocks closed lower on Tuesday as investors digested a fresh batch of mix economic data. For the day, the Dow Jones industrial average fell 50.81 points, or 0.24 percent, to close at 21,029.47. The S&P slipped 2.91 points, or 0.12 percent, to end at 2,412.91. The Nasdaq declined 7 points, or 0.11 percent, to close at 6,203.19. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 5.81 percent to 10.38.
Greif Inc. (GEF) was a notable winner Tuesday, rose 1.72 percent to 59.72. This is bullish from a technical perspective. In fact, a closer look at the daily chart of GEF suggests that the stock could climb above 70 in the coming days. Just so that you know, initially profiled in our October 26, 2016 “Swing Trader Bulletin” GEF had gained about 27% and remained well position. Below is an update look at a trade in GEF.
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 – Greif Inc. (daily)
Our “U.S. Market Trading Map” rates GEF as a Buy. The overall technical outlook remains Bullish. Last changed May 24, 2017 from neutral. GEF has been on a tear in recent days after the April correction found support near the trend channel moving average (as represents by the white line in the chart). Tuesday’s breakout had pushed the stock above the April high, suggesting that GEF might have switched to a new upswing. Money Flow measure held above the zero line since the stock reached an interim low in March, indicating there was little selling pressure. This is a bullish development, supporting a rapid advance above the March high, just above 60, and up to the next level of resistance at the 127.2% Fibonacci extension, near 70.
GEF has support near 56. Short-term traders could use that level as the logical level to measure risk against.
After the post-Brexit rally that saw the Transports gained 37% to its March 1 highs, the sector found itself in a secondary downtrend of lower highs and lower lows. The question is whether this is a pause that refresh or a beginning of a deep correction. According to our “U.S. Market Trading Map”, there could be more pains ahead for the sector. Below is an update look at a trade in the iShares Transportation Average ETF (IYT).
Chart 1.2 – iShares Transportation Average ETF (weekly)
Our “U.S. Market Trading Map” painted IYT bars in yellow (neutral) since early 2017. Over past months, IYT has been basing sideways using the 23.6% Fibonacci retracement as support. Last week’s rally found resistance at the upper boundary of the multi-month range bound trading. Money Flow measure held below the zero line since early May, indicating a negative net demand. This is a bearish development, increased the probability for a retest of the March-May low, just below 160. That level is significant in charting terms. A failure to hold above that level has a measured move to 150, based on the 38.2% Fibonacci retracement.
IYT has resistance near 166. Short-term traders could use that level as the logical level to measure risk against.
Chart 1.3 – S&P 500 index (daily)
Short-term technical outlook remains bullish. Last changed May 19, 2017 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 retreated after recent rally found resistance at the lower boundary of the red band. Right now, the most important thing to watch is trading behavior near the important sentiment 2400 mark. Pullback that respects this support is pretty bullish. Money Flow measure is above the zero line, inducing a positive net demand. This could help putting a short-term floor under the market.
Short-term trading range: 2400 to 2420. S&P has support near 2400. If the index starts coming under 2400, it’ll be breaking the bullish trading pattern. That would imply more supply is coming into the market. And the index might have to move to a much lower level to attract new buyers as a consequence. As for resistance, the lower boundary of the red band, near 2420, represents key price level. A sustain breakout above that level has a measured move to 2440.
Long-term trading range: 2350 to 2450. Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within this 100 points range.
Bottom line, we wouldn’t look too much into Tuesday’s trading action because it keeps the S&P within its short-term consolidation phase. Support is strong in the 2400 area and downside momentum does not appear strong enough to generate a decisive breakdown. As for strategy, traders should consider buying into market dips.
(By：Michelle Mai for Capital Essence)
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