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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday March 8, 2017.
We’ve noted in the previous Market Outlook that: “recent trading actions leaving the market in what looks to us like a back-and-forth consolidation of the late January massive rally. As the S&P approaches critical tipping point, we’re watching the next sell signal.” As anticipated, S&P closed lower Tuesday amid mounting geopolitical risks and rising expectations that the Federal Reserve would tighten monetary policy next week. For the day, the S&P declined 6.92 points, or 0.29 percent, to end at 2,368.39. The Dow Jones industrial average fell 29.58 points, or 0.14 percent, to close at 20,924.76. The Nasdaq dropped 15.25 points, or 0.26 percent, to close at 5,833.93. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, up 1.87 percent to 11.45.
D.R. Horton Inc. (DHI) was a notable winner Tuesday, rose 1.36 percent on strong volume to 32.85. This is bullish from a technical perspective. In fact, a closer look at the daily chart of DHI suggests that the stock could climb above 37 after the downward trend halted. Just so that you know, initially profiled in our February 3, 2017 “Swing Trader Bulletin” DHI had gained about 10% and remained well position. Below is an update look at a trade in DHI.
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 – D.R. Horton Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates DHI as a Buy. The overall technical outlook remains Bullish. Last changed February 15, 2017 from neutral.
Over the past few days, DHI had been trending lower in a short-term corrective mode as it worked off the overbought conditions. The correction tested and respected support at the late February breakout point. Tuesday’s bullish breakout had helped clear resistance at the early March falling trend line, signifies a bullish reversal. Money Flow measure held firmly above the zero line, indicating there was little selling interest. This is a positive development, supporting further upside follow-through and a test of the 127.2% Fibonacci extension, just above 37. Resistance stands in the way of continue rally is at the summer 2016 high, near 34.
Support is around 32. 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 February 9, 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”]
After reaching an all-time high 2400 last week, S&P has been trending lower in a short-term corrective mode as it worked off overbought conditions. Tuesday’s bearish breakdown below the late February breakaway gap, signifies an imminent trend shift. This is a short-term negative development. However, Money Flow measure still above the zero line, indicating there was little selling interest. So, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether recent breakdowns are decisive.
Short-term trading range: 2350 to 2400. S&P has minor resistance near 2370, or the late February breakaway gap. Above it, a more significant resistance lies at 2400. For now, 2350 represents key support. A failure to hold above that level signals a short-term correction with short-term downside target of 2300, based on the trend channel moving average.
Long-term trading range: 2300 to 2400. Unless there is a headline that everyone recognizes as extremely positive or negative, expect S&P to swing within the 100 point range, between 2300 and 2400.
In summary, S&P broke minor support Wednesday, signifies an imminent trend shift. With Money Flow measure above the zero line, the path with least resistance remains higher. As for strategy, once the S&P falls to 2300, traders should buy it in anticipation of a substantial rally to 2400.
(By：Michelle Mai for Capital Essence)
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