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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday December 23, 2016.
We’ve noted in the previous Market Outlook that: “S&P struggled near key technical resistance. There is a high probability of a period of consolidation activity between S&P’s 2262 and 2280 that may last several days.” As anticipated, stocks fell on Thursday as traders digested a fresh batch of economic data. For the day, the S&P dropped 4.22 points, or 0.19 percent, to end at 2,260.96. The Dow Jones industrial average fell 23.08 points, or 0.12 percent, to close at 19,918.88. The Nasdaq composite slipped 24.01 points, or 0.44 percent, to close at 5,447.42. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.42 percent to 11.43.
Central Garden & Pet Co (CENT) was a notable winner Thursday, surged 2.7% to 34.25. This is bullish from a technical perspective. In fact, a closer look at the daily chart of CENT suggests that the stock could climb up to test key resistance near 38 in the coming days. Just so that you know, initially profiled in our February 13, 2015 “Swing Trader Bulletin” CENT had gained more than 291% and remained well position. Below is an update look at a trade in CENT.
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 – Central Garden & Pet Co. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates CENT as a Buy. The overall technical outlook remains Bullish. Last changed November 8, 2016 from bearish.
Over the past few days, CENT has been basing sideways near the range top as traders digested the November massive run. Thursday’s upside breakout had helped clear resistance at the December’s high, signify resumption of the January upswing. Money Flow measure held firmly above the zero line since the stock reached an interim low in September, indicating there was little selling pressure. This is a bullish development, supporting further upside follow-through and a test of key technical resistance near 38, based on the 161.8% Fibonacci extension.
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 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 rally ran out of steam just below the lower end of the red band. Short-term momentum has weakened and overbought conditions are widespread enough to suggest that the pullback will continue. While recent trading actions are not very encouraging, it is not unusual to see some sorts of consolidations prior to a big price swing. Money Flow measure trended higher but still above the zero line, indicating a positive net demand for stocks. This is a bullish development, suggesting that pullback should shallow and quick.
Short-term trading range: 2265 to 2294. A close below 2265 will bring secondary support at 2236 into view but for now it looks firm. S&P has minor resistance near 2277. 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 2277 will trigger acceleration toward the range top, around 2294.
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 but for now it looks firm.
In summary, the fact that S&P failed follow-through to recent breakout from the triangle pattern suggested that the bulls are losing control of the market. Nonetheless, 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 for strategy, traders should consider purchase stocks during short-term dips in the market and stay bullish.
(By：Michelle Mai for Capital Essence)
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