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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday May 26, 2016.
We’ve noted in the previous Marek Outlook that: “key technical development in Tuesday’s trading session was a clear break above the massive 2-conjoining resistance between 2062 and 2070 levels, or the trend channel moving average and the April falling trend line. This is a bullish development, signaled resumption of the February upswing with upside target of 2100.” As anticipated, stocks rallied hard for a second day Wednesday that saw the S&P traded as high as 2,094.73 before sellers stepped in and pushed prices off the intraday high. For the day, the bench mark gauge added 14.48 points, or 0.70 percent, to close at 2,090.54. The Dow Jones industrial average closed up 145.46 points, or 0.82 percent, at 17,851.51. The Nasdaq composite closed up 33.84 points, or 0.70 percent, at 4,894.89. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 3.61 percent to 13.90.
Packaging Corp of America (PKG) was a notable winner Wednesday, jumped 2.74% on strong volume to 43.95 – a new YTD high. In fact, a closer look at the daily chart of PKG suggests that the stock could climb above 81 in the coming days. Just so that you know, initially profiled in our May 23, 2016 “Swing Trader Bulletin” PKG had gained about 4% and remained well position. Below is an update look at a trade in PKG.
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 – Packaging Corp of America (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates PKG as a Buy. The overall technical outlook remains bullish. Last changed March 15, 2016 from neutral.
PKG has been on a tear in recent days after the early May correction tested and respected support at the trend channel moving average (as represents by the white line in the chart). Wednesday’s upside breakout had helped clear the massive 2-conjoining resistance at the 67 zone, based on the April-May highs and the 61.8% Fibonacci retreatment of the February 2015 to February 2016 downswing.
Money Flow measure held firmly above the zero since the stock reached an interim low in February, indicating a positive net demand. Momentum indicator shifted higher from oversold zone, allowing additional upside probing. Additionally, the fact that PKG 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 PKG up to the February 2015 high, just above 81. Resistance stands in the way of continue rally is at the April 2015 breakaway gap, near 73.40.
Support is around 65.50. At this juncture, only a close below that level can wreck the near-term bullish outlook.
Chart 1.2 – S&P 500 index (daily)
The overall technical outlook remains bullish. Last changed May 24 from neutral.
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]
Wednesday’s upside follow-through served as a confirmation and extension to Tuesday’s bullish break above the April falling trend line. Key technical development in Wednesday trading session was a clear break above 2085. That level was significant when the S&P tested and failed in early May. Today bullish breakout would be confirmed on another close above 2085 tomorrow, which would support upside follow-through and a test of more important resistance in the 2111-2134 area in the coming weeks. As usual we must stress out that the market is short-term overbought follow recent advance so it should not be surprising to see backing and filling prior to the new upswing.
Immediate support is at recent breakout point near 2085. A failure to hold above that level would signify that current rally is a head fake and a retest of the May low should be expected.
In summary, S&P cleared key resistances, breaking out from a short-term downward trend. This is a bullish development, supporting upside follow-through and a test of more important resistance in the 2111-2134 area in the coming weeks. However, market is short-term overbought. There could be a sell-off in the offing after recent run up, but it would be shallow if so.
(By：Michelle Mai for Capital Essence)
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