S&P Breakouts Might Not Sustain

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 April 11, 2018.

Stocks closed higher Tuesday after China’s president said he would work to “open” the country’s economy, easing trade war fears.  For the day, the Dow Jones industrial average rallied 1.79 percent to close at 24,408. The S&P gained 1.8 percent to close at 2,656.87. The Nasdaq composite advanced 1.7 percent to 7,094.30. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 5.97 percent to close at 20.47.

CEMNews_trial

One of the noteworthy developments in recent days has been the move in social media stocks. The group attracted strong buying support Tuesday as Facebook CEO Mark Zuckerberg spoke at a joint hearing of the Senate Judiciary and Commerce committees about Facebook’s treatment of user data. The company has been under pressure after March media reports revealed that a researcher sold Facebook user data to an outside firm, Cambridge Analytica, which has been associated with Donald Trump’s campaign.  The Global X Social Media ETF (SOCL) jumped 2.09 percent to 34.13, bringing its YTD gains up to 3.6%, outperformed the S&P by a wide margin.  Now the question is whether the rally has more legs?  Below is an update look at a trade in SOCL.

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 – Global X Social Media ETF (daily)

Our “U.S. Market Trading Map” painted SOCL bars in green (buy) – see area ‘A’ in the chart. The first dominant feature on the chart is the rising trend started in early 2017.  The second dominant feature of the chart is the downward trend started in early March 2018.  The correction pushed the ETF down to the 200-day moving average. That level roughly corresponds with the 38.2% Fibonacci retracement of the 2017-2018 upswing.  Tuesday’s upside breakout confirmed last week’s bullish reversal signal.  This is short-term positive development, opened up for a test of the more significant resistance near the 35-36 zone.

SOCL has support near 32.  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 bullish.  Last changed April 10, 2018 from slightly 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, S&P climbed above the upper boundary of the green band after falling below that level last Friday.  Nevertheless, Tuesday’s rally has proved nothing as far as its staying power or as a possible trend reversal.  Money Flow measure and momentum had been strengthened but do not appeared strong enough to generate widespread breakouts.  Over the next couple of days, traders should monitor trading behaviors as the 2675 zone is tested as resistance.  A close above that level will break the 2-week sideways consolidation trading pattern and bring the trend channel moving average, around 2700, into view.

Short-term trading range: 2600 to 2675.  S&P has support near 2600.  A close below that level has measured move to 2570.  The index has resistance near 2675.  A close above that level could trigger acceleration toward the trend channel moving average.

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, the big picture remains the same.  There’s an orderly low-level consolidation period near S&P’s 2570-2700, which represented the digestion period in the aftermath of the February-March massive selloff.  Market internals had been improve but do not appeared strong enough to generate sustain breakouts.

 

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.