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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday April 29, 2016.
Stocks closed significantly lower Thursday amid weakness in large-cap tech stocks. Also contributed to the overall pessimism was sharp declines in the Nikkei 225 overnight after the Bank of Japan kept policy unchanged. For the day, the Dow Jones industrial average closed down 210.79 points, or 1.17 percent, at 17,830.76. The S&P 500 closed down 19.34 points, or 0.92 percent, to 2,075.81. The Nasdaq composite closed down 57.85 points, or 1.19 percent, at 4,805.29. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged 10.53 percent to 15.22.
Goldcorp Inc. (GG) was a notable winner Thursday, surged 6.05% on strong volume to 18.94 after the miner reported better than expected Q1 earnings on the back of higher production and lower costs. This is definitely a positive sign going forward. In fact, a closer look at the daily chart of GG suggests that the stock could climb above 24 in the coming days. Just so that you know, initially profiled in our April 7, 2016 “Swing Trader Bulletin” GG had gained more than 18% and remained well position. Below is an update look at a trade in GG.
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 – Goldcorp Inc. (daily)
As indicated in the above chart, our “U.S. Market Trading Map” rates GG as a Buy. Over the past few days, GG has been basing sideways near its range top resistance as traders digested that March massive rally. Thursday bullish breakout had helped clear resistance at the April high and the 61.8% Fibonacci retracement of the January 2015 to January 2016 downswing.
Money Flow measure held mostly above the zero line since the stock reached an interim low in January, indicating there was little selling pressure. This is a positive development. Additionally, the fact that GG 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 GG above 24, based on the January 2015 high.
Traders however, should be mindful that GG had traded outside its short-term trading range and into overbought zone following recent advance so we’d be cautious against taking large position at this stage of a rally.
Immediate support is around 17.70. Pullback that respects this support is bullish and should consider as buying opportunity. Below it, a more significant support is around 17. Only a close below that level can wreck the near-term bullish outlook.
Chart 1.2 – S&P 500 index (daily)
The overall technical backdrop remains bullish since March 1, 2016. Current Market Climate is characterized by an aggressive with a low but rising 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”.]
Key technical development in Thursday trading session was a break below the lower edge of the pink band. In fact, current trading pattern is similar to the late November 2015 in which the S&P rolled over following an extended overbought condition. What different this time is that we’re seeing strong breadth in the market. As you can see, Money Flow measure is much stronger that it was back in November, indicating the underlying bid is alive and well.
Right now follow-through is the key. A downside follow-through Friday and a close below the April low of 2033 will break the bullish pattern of higher highs and higher lows going back to mid-February and supports a deeper pullback.
Nevertheless, a close above 2090 signifies a breakout to new highs in the days ahead.
In summary, following the impressive “V” shape rally in mid-February, the S&P is now at make-it or break-it juncture. Although there are some potential sell signals over the horizon, the path with least resistance remains higher. With that said, the bears do not have any cases unless they manage to push prices below the April low of 2033.
(By：Michelle Mai for Capital Essence)
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