S&P Internal Deteriorated But Support Remains Intact

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

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, stocks closed mostly lower Wednesday amid geopolitical tensions.  The Dow Jones industrial average fell 0.90 percent at 24,189.45. The S&P declined 0.6 percent to 2,642.19. The Nasdaq composite dropped 0.4 percent to close at 7,069.03.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 1.12 percent to close at 20.24.


One of the noteworthy developments in recent days has been the move in gold. The metal prices up for fourth straight session amid concerns over tensions in Syria, U.S. sanctions on Russia and the U.S.-China trade stand-off.  The SPDR Gold Shares (GLD) rose 0.78 percent to 128.11.  Now the question is whether the rally has more legs?  Below is an update look at a trade in GLD.

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 – SPDR Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in green (buy) – see area ‘A’ in the chart. Looking at the 7-year weekly chart of GLD we can see that there is currently a high level consolidation, which represented the digestion period in the after math of the late 2017 rally.  This week’s bullish trading action pushed the ETF up against resistance at the 130-132 zone.  The fact that the ETF managed to hold on to most of the late 2017 massive gains in the face of overbought conditions, indicating an internal strength.  This is a bullish development, suggesting GLD will move to a much higher level as soon as it works off overbought conditions.  A close above 132 has measured move to 142, based on the 50% Fibonacci retracement of the 2011-2015 downswing.

GLD has support near 125.  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 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”]

S&P moved down to test support at the upper boundary of the green band after climbed above that level on Tuesday.  Money Flow measure crossed below the zero line, indicating an increase in selling pressure.  Momentum indicator has been weakening but downward momentum does not appeared strong enough to generate a widespread breakdown.  The index could signal a downward trajectory, depending on how it closes over the next few days.  The upper boundary of the green band, around 2635, represents key support.  If it closes below that level, the next leg is likely lower, and we’re looking at 2600.

Short-term trading range: 2600 to 2700.  S&P has minor support near 2636.  A close below that level has measured move to 2600.  The index has resistance near 2660.  A close above that level could trigger acceleration toward the trend channel moving average, near 2700.

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, S&P will have a downward bias this week, pressured by short-term negative momentum but we expect support at the March lows to remain largely intact.  There is a high probability that market is in for a ‘range-bound’ trading environment.  This is a rally and retreat environment. It is not a trending environment. Short-term traders can anticipate continued volatility with rapid up and down moves in the markets.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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