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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 12, 2018.

We’ve noted in the previous Market Outlook that: “the big picture remains the same. There is a consolidation near the trend channel moving average, which represents digestion period.  S&P’s 2740 is the line in the sand.  A close above that level could trigger acceleration toward 2800.”  As anticipated, stocks surged Friday after the Bureau of Labor Statistics said the U.S. economy added 313,000 jobs in February.  The S&P gained 1.7 percent to end at 2,786.57.  The Dow Jones industrial average rose 1.77 percent to close at 25,335.74.  The Nasdaq composite rose 1.8 percent to 7,560.81.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 11 percent to close at 14.62.


One of the noteworthy developments in recent days has been the move in defensive stocks.  The group was under selling pressure in recent days as it’s all but certain that the Federal Reserve will increase interest rates several times in 2018.  After a lack luster 2017 that saw the Utilities Select Sector SPDR ETF (XLU) added 8.5 percent, the ETF fell more than 6 percent YTD, underperformed the S&P by a wide margin.  Now the question is whether recent selloff is a beginning of an end or there’re more pains ahead?  Below is an update look at a trade in XLU.

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 – Utilities Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLU bars in red (sell) – see area ‘A’ in the chart.  Over the past few weeks, XLU has been trending basing sideways just below the 100-week moving average after falling below that level in early 2018.  That level is significant in charting terms.  It provided support since the ETF reached a major low in 2009. It’s now acting as strong resistance. Over the next few days, traders should monitor the retreat and rebound behavior as the February low is tested as support.  A close below 47.70 on a weekly basis would trigger a sell signal with downside target near 44, based on the 38.2% Fibonacci retracement of the 2009-2017 upswing.

XLU has resistance near 51.  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 neutral.  Last changed March 7, 2018 from bullish (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 Monday session was a close above the trend channel moving average.  That level was significant when the S&P fell below it in late February.  This is a positive development, signify a breakout and bullish reversal.  Money Flow measure and momentum had strengthened but does not appear strong enough to generate a sustain rally. This could put a cap on the rally.


Short-term trading range: 2682 to 2822.  S&P has support near 2740.  A close below that level will bring the early March lows into view. The index has resistance near 2822.  A close above that level could trigger acceleration toward the early 2018 highs.


Long-term trading range: 2540 to 2820.  S&P has major support near 2540.  A close below that level will trigger a major sell signal with initial downside target near 2400.  The index has long-term resistance near 2820.  A trade above that level often marked significant market tops.


In summary, S&P broke key resistance last week, suggesting that the one-week sideways trading pattern had resolved itself into a new upswing.  Nevertheless, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakouts are decisive.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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