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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday December 19, 2016.
We’ve noted in the previous Market Outlook that: “several key technical indicators suggest that S&P is in a midst of a short-term consolidation phase.” As anticipated, stocks closed slightly lower Friday, with financials lagging, following report that a Chinese Navy warship has seized an underwater drone deployed by an American oceanographic vessel in international waters in the South China Sea, triggering a formal diplomatic protest from the United States and a demand for its return. For the day, the Dow Jones industrial average closed 8.83 points lower, or 0.04 percent, at 19,843.41. The S&P 500 closed down 3.96 points, or 0.18 percent, at 2,258.07. The Nasdaq composite closed down 19.69 points, or 0.36 percent, at 5,437.16. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 4.61 percent to 12.20.
Ross Stores Inc. (ROST) was a notable winner Friday, surged 3.36% to 69.53 –a fresh 52-week closing high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of ROST suggests that the stock could climb above 80 after the downward trend halted. Just so that you know, initially profiled in our September 6, 2016 “Swing Trader Bulletin” ROST had gained about 11% and remained well position. Below is an update look at a trade in ROST.
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 – Ross Stores Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates ROST as a Buy. The overall technical outlook remains Bullish. Last changed December 16, 2016 from bearish.
Over the past few days, ROST has been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction found support near the November breakout point. Friday’s upside breakout had helped clear resistance at the early December falling trend line, signify a bullish reversal. Money Flow measure crossed above the zero, indicating a positive net demand for the stock. This is a bullish development, supporting further upside follow-through and a test of the important sentiment 80 mark. That level roughly corresponds with the 161.8% % Fibonacci extension of the November 2015 to August 2016 upswing. Resistance stands in the way of continue rally is at the 127.2% Fibonacci extension, just above 72.
Support is around 67. 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”]
S&P retreated after recent penetration of key technical level was met with a wave of aggressive selling. Money Flow measure trended lower but still above the zero line, indicating a positive net demand for stocks. This is a bullish development, suggesting that the index could be basing sideways as it digests overbought conditions rather than falling significantly lower. So, it should not be surprising to see further consolidation in the coming days.
Short-term trading range: 2250 to 2280. A close below 2250 will bring secondary support at 2222 into view but for now it looks firm. S&P has minor resistance near 2276. In order to build a sustain rally, the S&P must hurdle and sustain above that level. The bullish perspective is that an advance above 2276 will trigger a new buy signal with an initial upside target of 2300.
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.
In summary, based upon recent trading actions, the S&P had entered a short-term consolidation phase, which may last about 2 to 5 trading sessions. With Money Flow measure above the zero line, the near-term technical bias is skewed toward greater strength than weaknesses. Additionally, the fact that the index had managed to hold on to most of recent gains in the face of such extreme overbought condition, suggested that sell-off should be shallow and quick because the sideline money will try to fight its way back into the market. This increases the probability that the S&P will break to new high as soon as the market works off the overbought condition.
(By：Michelle Mai for Capital Essence)
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