S&P Short-term Indicators Remain Supportive of Further Consolidation

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday April 10, 2018.

We’ve noted in the previous Market Outlook that: “S&P’s oversold rally is showing signs of buyer’s fatigue, noting a struggle for the index to get past 2700.  A failure to move above key resistance means that most of the potential buyers at this level had already placed their bets. The next batch of buyers typically sits at a much lower level.  This is the danger in the current market.”  As expected, stocks traded higher in early Monday session as US-China trade tensions eased.  The market however, gave back most of the early gains following report that the FBI searched the office, home and Manhattan hotel room of Trump’s longtime attorney Michael Cohen.  For the day, the Dow Jones industrial average added 0.19 percent to 23,979.10. The S&P rose 0.33 percent to 2,613.16. The Nasdaq composite gained 0.51 percent to close at 6,950.34.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained 1.30 percent to close at 21.77.


One of the noteworthy developments in recent days has been the move in tech stocks. The Technology Select Sector SPDR ETF (XLK) fell 1.3 percent MTD amid concerns that the group could suffer the most collateral damage from US-China trade war.  Now the question is whether the 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. Over the past few weeks, XLK has been basing sideways using the 23.6% Fibonacci retracement of the 2016-2018 upswing as support after the late March massive selloff pushed the ETF below 20-week moving average – the level that offered support since XLK broke out in early 2016.  The fact XLK is trending sideways as it worked off oversold condition rather than bouncing higher indicating an internal weakness.  This is a bearish development, suggesting that XLK will need to move to a much lower level to attract new buyers.  A close below 63 has measured move 61-59, based on the 4-year moving average and the 38.2% Fibonacci retracement.

XLK has resistance near 66.  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 slightly bearish.  Last changed April 9, 2018 from bearish (see area ‘A’ in the chart).

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

Once again, market sold off after Monday’s rally attempt ran out of steam near the upper boundary of the green band. The big picture pretty much the same. There is a consolidation within the confines of the green band.  Money Flow measure whipsaw near the zero line, indicating a lack of commitment.  Momentum indicator has been weakening following recent selloff.  These elements suggested that the path with least resistance remains lower.

Short-term trading range: 2600 to 2670.  S&P has support near 2600.  A close below that level has measured move to 2570.  The index has resistance near 2670.  A close above that level could trigger acceleration toward the trend channel moving average but for now it looks firm.

Long-term trading range: 2450 to 2700.  S&P has key support near 2580.  A close below that level will trigger a major sell signal with downside target near 2450.  The index has resistance near 2700.

In summary, Monday’s rally attempt did not improve the posture of our short-term indicators, which remain supportive of further pullback.  S&P has 2600 to trade against.  If that were to break, we could see 2570-2500 next.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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