S&P Shifted to Low Level Consolidation Phase Prior to New Downswing

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 March 29, 2018.

We’ve noted in the previous Market Outlook that: “Tuesday’s massive selloff pushed S&P down to formidable support zone.  Momentum and Money Flow measure are not favorable over the near to intermediate term, suggesting the support might not hold for long.”  As expected, the S&P traded slightly higher in early Wednesday session before sellers stepped in and pushed the index lower.  For the day, the bench mark gauge fell 0.3 percent to 2,605.  The Dow Jones industrial average gave up 0.04 percent to 23,848.42.  The Nasdaq composite fell 0.8 percent to 6,949.23.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.64 percent to close at 22.87.

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One of the noteworthy developments in recent days has been the move in semiconductor stocks.  The group was under selling pressure Wednesday amid weakness in Apple (AAPL), which tumbled 4.4 percent, after Goldman Sachs analysts predicted lower iPhone sales in March and for the June quarter than the rest of the Street. They also cut their price target on the stock to $159 from $161.  The VanEck Vectors Semiconductor ETF (SMH) closed more than 10 percent below its 52-week high set in early March, down 2.22 percent Wednesday to 102.19.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in SMH.

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 – VanEck Vectors Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SMH bars in red (sell) – see area ‘A’ in the chart.  The first dominant feature on the chart is the rising trend started in late 2015.  The second dominant feature of the chart is the downward trend starting in early March.  This week’s selloff pushed the ETF below the 20-week moving average.  That level is significant in charting terms.  It offered support since the ETF broke out in early 2016. Right now, follow-through is the key.  A close below 103 this week has measured move to 94, based on the 23.6% Fibonacci retracement and the 50-week moving average.

SMH has resistance near 109.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook remains bearish.  Last changed March 27, 2018 from neutral (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

Looking at the eight-month daily chart of the S&P, we can see that there is currently a retest of support at the bottom of its short-term trading range (as represents by the dark-green band in the chart) near 2600.  Momentum indicator shifted lower from near oversold zone, indicating an internal weakness.  Adding to concerns is the lagging Money Flow measure.  The indicator fell below the zero line as market sold off last week, suggesting that the bears are more aggressive as prices off than the bulls were as prices ascended.  These elements suggested that the support might not hold for long and S&P has to go to a much lower level to attract new buyers.

Short-term trading range: 2590 to 2690.  S&P has support near 2590.  Below it, a more significant support lies at 2560.  This creates a strong band of support between 2590 and 2560.  A close below 2560 will open the flood gate toward 2400.  The index has resistance near 2690.  A close above that level could trigger acceleration toward the trend channel moving average but for now it looks firm.

Long-term trading range: 2560 to 2820.  S&P has key support near 2560.  A close below that level will trigger a major sell signal with downside target near 2400.  The index has long-term resistance near 2820.  A trade above that level often marked significant market tops.

In summary, the fact that the S&P is basing sideways rather than bouncing higher as market digested Tuesday’s massive selloff indicating an internal weakness. Nevertheless, we’re expected the S&P to shift to an orderly low-level consolidation period prior to new downswing as the 2600 zone is too big and too important to fall quickly.

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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February Lows Might Not Hold for Long

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 Wednesday March 28, 2018.

Stocks traded higher in early Tuesday session that saw the S&P traded as high as 2,674.78 before sellers stepped in and pushed prices significantly lower.  For the day, the bench mark gauge fell 1.7 percent 2,612.62. The Dow Jones industrial average pulled back 1.43 percent to 23,857.71. The Nasdaq composite fell 2.9 percent to 7,008.81.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 6.99 percent to close at 22.50.

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One of the noteworthy developments in recent days has been the move in tech stocks.  The group had been under selling pressure in recent days amid the Facebook’s data scandal.  The Technology Select Sector SPDR ETF (XLK) tumbled 3.21 Tuesday following reports that Nvidia is temporarily suspending self-driving tests. The news sent the stock down 7.8 percent. Tesla shares also fell 8.2 percent after the U.S. National Transportation Safety Board announced it would investigate a fatal crash that took place last week.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in XLK.

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 – Technology Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLK bars in red (sell) – see area ‘A’ in the chart.  The first dominant feature on the chart is the rising trend started in mid-2016.  The second dominant feature of the chart is the downward trend starting in mid-March.  Last week’s massive selloff pushed the ETF below the 20-week moving average, the level that offered support since the ETF reached an interim low in summer 2016.  This is a bearish development, suggesting that XLK might have to go to a much lower level to attract new buyers. Right now, follow-through is the key.  A close below 69.50 this week has measured move to 61.

XLK has resistance near 68.  Short-term traders could use that level as the logical level to measure risk against.

Chart 1.2   – S&P 500 index (daily)

Short-term technical outlook shifted to bearish.  Last changed March 27, 2018 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 sold off after Monday’s rally attempt ran out of steam near the upper boundary of the green band.  Tuesday’s selloff pushed the index down to the lower boundary of the green band.  That level was tested several times in recent weeks.  Technically speaking, the more often support is tested the weaker it becomes.  Adding to concerns is the lagging Money Flow measure.  The indicator fell below the zero line as market sold off last week, suggesting that the bears are more aggressive as prices off than the bulls were as prices ascended.  These elements increased the probability for a test of the more important support in the 2580-2530 zone, based on the February lows.

Short-term trading range: 2530 to 2690.  S&P has support near 2580.  Below it, a more significant support lies at 2530.  This creates a strong band of support between 2580 and 2530.  A close below 2530 will open the flood gate and we’re looking at 2400.  The index has resistance near 2690.  A close above that level could trigger acceleration toward the trend channel moving average but for now it looks firm.

Long-term trading range: 2560 to 2820.  S&P has key support near 2560.  A close below that level will trigger a major sell signal with downside target near 2400.  The index has long-term resistance near 2820.  A trade above that level often marked significant market tops.

In summary, Tuesday’s massive selloff pushed S&P down to formidable support zone.  Momentum and Money Flow measure are not favorable over the near to intermediate term, suggesting the support might not hold for long.  With that said, this is not a time to be long. If the market is going to find a bottom in the near term, we want to see the S&P stabilizes and bounces off 2560.

 

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.