New Trading Range for S&P
Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.
Good Morning. This is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday July 2, 2009.
After opened markedly higher in the early Wednesday as manufacturing and housing reports showed the pace of the contraction in those sectors is easing, stocks gradually pared about half of the early gains in afternoon trading. Given that the June non-farm payrolls report is scheduled to release Thursday morning, Wednesday late day selloff indicated that the Street positioned bearishly in anticipating a big bad job report.
Consumer staples stocks caught a bid in Wednesday trading session thanks to General Mills (GIS) better-than-expected earnings and upbeat forecasts. In fact, our “U.S. Market Trading Map” is currently expecting the Consumer Staples Sector SPDR (XLP) to rally another 3% to 6% over the next couple of days.
Chart 1.1 – Consumer Staples Sector SPDR (daily).
As indicated in the above chart, there is currently a run toward key resistance at the 23.96-24.92 areas followed the bullish breakout above the three week pullback consolidation pattern, which represents the digestion period in the aftermath of the March-June big advance. In short, the near-term technical outlook remains bullish barring a close below 23.03 (the white line in the chart).
Though Wednesday rally was broad-based, trading volume remains unimpressive with less 1 billion shares traded on the NYSE – that’s the lowest volume in three weeks. The broader market, S&P 500 gained as much as 1.4% at its intraday high though pared most of the gains into the close, up 4 points or 0.4% to settle at 923. This is very disappointed and suggesting that the impressive spring rally could be running out of steam. In fact, our “U.S. Market Trading Map” has been projecting a neutral or sideway trading pattern on the S&P since late May.
Chart 1.2 – S&P 500 index (daily).
In accordance to our “U.S. Market Trading Map”, S&P could be forming a new trading range between the 880 and 950 levels. As shown, after a strong run of outperformance since late March, the S&P stalled at 950 and traded down to the high 880s before rebounding. That level was also the peaks of the prior rallies in February and May, so we should expect it to act as strong support going forward. At some point the index will either break above or below this range. That, if and when it happens, should be a fierce move.
Bottom line, until there is a clear break out from the current 880-950 trading range on the S&P 500 index, it looks like we’ll continue trading relatively sideways.
(By: Michelle Mai for Capital Essence)
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Tags: Consumer Staples Sector SPDR, General Mills, GIS, non-farm payrolls, NYSE, s&p 500 index, spx, XLP
