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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday February 21, 2017.
We’ve noted in the previous Market Outlook that: “an overbought pullback consolidation is likely to interrupt the January massive rally in the S&P. Although seemingly vulnerable to further short-term weakness, trading sentiment remains strong so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.” As anticipated, S&P traded mostly lower throughout Friday’s session before the buyers stepped in near the close and pushed prices higher. For the day, the bench mark gauge gained 3.94 points, or 0.17 percent, to end at 2,351.16. The Dow Jones industrial average rose 4.28 points, or 0.02 percent, to close at 20,624.05. The Nasdaq composite advanced 23.68 points, or 0.41 percent, to close at 5,838.58. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 2.3 percent to 11.49.
Bunge Ltd (BG) was a notable winner Friday, jumped 3.2 percent on strong volume to 77.78 – a fresh 52-week high. This is bullish from a technical perspective. In fact, a closer look at the daily chart of BG suggests that the stock could climb up to test key technical level near 90 in the coming days. Just so that you know, initially profiled in our November 15, 2016 “Swing Trader Bulletin” BG had gained about 17% and remained well position. Below is an update look at a trade in BG.
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 – Bunge Ltd. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates BG as a Buy. The overall technical outlook remains Bullish. Last changed February 15, 2017 from neutral.
BG has been on a tear in recent days after the January correction found support at the bottom of its short-term trading range. Friday’s upside follow-through confirmed Wednesday’s breakout above the December high and the 61.8% Fibonacci retracement of the 2015 to 2016 downswing, clearing an important hurdle based on Fibonacci levels.
Money Flow measure surged to multi-month high, indicating an increase in buying pressure. This is a bullish development, supporting further upside follow-through. Additionally, the fact that BG 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 BG up to the 2015 high, just below 90.
Support is around 73. 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”]
As shown, the S&P had been coiling sideways over the past few days after the early February rally ran into resistance near the upper boundary of the red band. Technically speaking, current trading pattern looks like a flat flag with resistance at the low 2350s zone. While this typical pattern tends to resolve in the direction of the existing trend, which is up in this case, the lagging Money Flow measure, indicating a lack of commitment among the bulls. So, traders should be aware of fake out, in which the market might rollover on the first breakout attempt.
Short-term trading range: 2332 to 2360. The upper boundary of the red band, around 2360, represents key resistance. A trade above that level often marked short-term market top. The lower boundary of the red band, currently at 2332, represents minor support. A close below that level will bring the important sentiment 2300 mark into view. For now, 2300 is the line in the sand. A close below that level indicates that an extreme change in the sentiment has occurred and increase the probability of a significant downside correction.
Long-term trading range: 2253 to 2340. S&P traded slightly above the upper boundary of its long-term trading range. Probability of a sustain breakout is extremely limited. Expect a modest pullback toward 2340. For now, 2253 represents key support. A close below that level signals a full blow correction but for now it looks firm.
In summary, S&P is now trapped in a congestion zone. The trading pattern exhibits characteristics of a flat flag. At some point the market will eventually breakout from the tight trading range. That, if and when it happens, should be a fierce move. And this is something traders need to look out for.
(By：Michelle Mai for Capital Essence)
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