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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday May 3, 2016.
We’ve noted in the previous Market Outlook that: “S&P registered a short-term oversold buy signal that support a broad-based rally in the next few days.” As anticipated, stocks closed higher Monday, recovered some of last week’s losses. For the day, the S&P 500 gained 16 points to 2,081 while the Dow Jones industrial average added about 117 points to 17,891 and the Nasdaq composite rose 42 points to 4,817. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 6.5 percent to 14.68.
American Superconductor Corp. (AMSC) was a notable winner Monday, surged 9.34% on strong volume to 10.89 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of AMSC suggests that the stock is in an upswing that projects to 12.30 at minimum but has an overshoot target over 15. Just so that you know, initially profiled in our March 22, 2016 “Swing Trader Bulletin” AMSC had gained more than 41% and remained well position. Below is an update look at a trade in AMSC.
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 – American Superconductor Corp. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates AMSC as a Buy. AMSC has been on a tear in recent weeks after early March correction tested and respected support at the trend channel moving average (as represents by the white line in the chart). Friday’s upside breakout had helped clear resistance at the range top and the prior high set in April 2015, signals resumption pf the secondary upswing that has been in place since August 2015.
Money Flow measure held mostly above the zero line since the stock reached late 2015, indicating there was little selling pressure. This is a positive development and support further upside follow and a test of the 38.2% Fibonacci retracement near 12.30. That level is significant in charting terms. The bullish perspective is that a sustain advance above that level could trigger acceleration toward the 50% Fibonacci retracement, just above 15.
Immediate support is around 10. 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 since early March. Current Market Climate is characterized by an aggressive with a low volatility trading environment that had historically been slightly positive for stocks. The S&P is currently undergoing a short-term downside correction, which is taking place within a context of an overall bullish trading environment (see area “A” in the chart).
[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”.]
Monday’s upside follow-through served as a confirmation and extension to Friday’s bullish reversal signal. This is a short-term bullish development but let’s notice that the S&P had rallied directly into key technical level at the lower edge of the pink band – the level that provided support since the index breakout in early March. That level was significant when the index felt through it earlier last week and it could now become an important resistance level. with that said, a sustain advance above the lower edge of the pink band, currently at 2085, would signify a breakout, supporting further upside follow-through and a retest of the important sentiment 2100 mark.
For now, 2050 represents key support. A retest of support at the trend channel moving average should be expected if that support gives way.
In summary, based upon recent trading actions, an important near-term low had been established and the S&P 500 index is in an early stage of a short-term oversold bounce. However, the 2085 zone is too big and too important to fall quickly so it should not be surprising to see some consolidations in the coming days.
(By：Michelle Mai for Capital Essence)
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