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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday October 5, 2016.
We’ve noted in the previous Market Outlook that: “Monday’s decline marked a loss of momentum that is a setback for the market.” As anticipated, stocks closed lower Tuesday as traders digested data from the International Monetary Fund and remarks from a Federal Reserve official. For the day, the S&P fell 10.71 points, or 0.5 percent, to close at 2,150.49. The Dow Jones industrial average closed 85.40 points lower, or 0.47 percent, at 18,168.45. The Nasdaq fell 11.22 points, or 0.21 percent, to end at 5,289.66. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 0.44 percent to 12.63.
Notably, SkyWest Inc. (SKYW) bucked the overall weakness, rose 0.69% to 27.89. This is bullish from a technical perspective. In fact, a closer look at the daily chart of SKYW suggests that the stock could climb above 34 after the downward trend halted. Just so that you know, initially profiled in our April 25, 2016 “Swing Trader Bulletin” SKYW had gained about 39% and remained well position. Below is an update look at a trade in SKYW.
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 – SkyWest Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates SKYW as a Buy. The overall technical outlook remains bullish. Last changed October 3, 2016 from neutral.
Over the past few days, SKYW has been trending higher after the September correction found support near the bottom of its short-term trading range. That level roughly corresponds with the 23.6% Fibonacci retracement. Tuesday’s upside follow-through served as a confirmation and extension to Monday’s bullish breakout above the September trend line, signify resumption of the January upswing.
Money Flow measure held mostly above the zero line since the stock reached an interim low in January, indicating there was little selling pressure. This is a bullish development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, just above 34. Resistance stands in the way of continue rally is at the September high, just below 30.
Support is around 25. 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 September 30 from neutral (see area ‘A’ in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
Key technical development in Tuesday trading session was a clear break below the September rising trend line – the level that offered support since the index reached an interim low in early September. This is bearish and suggested that the 4-week triangle pattern had resolved itself into a new downswing.
Tuesday bearish breakdown could be signaling a new secondary downswing. Perhaps the negative Money Flow measure is the best illustration of the bears’ case. The breakdown would be confirmed on another close below 2150, which would support near-term downside follow-through and a retest of the important support in the 2120-2100 area.
As usual we must stress out that a close above 267, based on the trend channel moving average, will jeopardize Tuesday’s bearish signal and a retest of the August high is possible.
In summary, Tuesday’s bearish broke down below September rising trend line suggested that the 4-week triangle pattern had resolved itself into a new downswing. Right now, follow-through is the key. Over the next few days, traders should look for a close below 2150 on the S&P. That if happens, could trigger a torrent of selling, which would eventually push the index down to the 2120-2100 zone.
(By：Michelle Mai for Capital Essence)
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