S&P Cleared Key Levels but near-term Gains could be Limited

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday May 11, 2018.

Stocks rose sharply Thursday after Donald Trump said that his historic meeting with North Korean leader Kim Jong Un will take place June 12 in Singapore. It would be the first meeting ever for a sitting U.S. president and the head of North Korea.  For the day, the S&P gained 0.9 percent to 2,723.07.  The Dow Jones industrial average rose 0.80 percent to close at 24,739.53. The Nasdaq composite advanced 0.9 percent to close at 7,404.97.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 1.42 percent to close at 13.23.


One of the noteworthy developments in recent days has been the move in airline.  The sector, which performs better in a low oil prices, has been under selling pressure in recent days after crude oil climbed above the important sentiment $70 mark for the first time since November 2014.  The U.S. Global Jets ETF (JETS) fell 1.1 percent this week, bringing its YTD lost up to 7.6 percent, 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 JETS.

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 – U.S. Global Jets ETF (weekly)

Our “U.S. Market Trading Map” painted JETS bars in red (sell) – see area ‘A’ in the chart.  The first dominant feature on the chart is the rising trend line starting in mid-2016.  The second dominant feature of the chart is the downward trend since early 2018.   The late April selloff pushed the ETF below the 4-year moving average, breaking an important support.  This week downside follow-through confirmed the bearish break and opened the flood gate toward the 38.2% Fibonacci retracement, around 29.  A close below that level had measured move to around 27m, based on the 50% Fibonacci retracement.

JETS has resistance near 31.20.  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 May 10, 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 Thursday session was a clear break above the 2018 falling trend line.  That level was significant when the S&P tested and failed in March and April.  The bullish breakout would be confirmed on another close above 2700 tomorrow, which would support upside follow-through and a test of more important resistance in the 2800 area in the coming weeks.  Nevertheless, S&P is short-term overbought follow recent advance so it should not be surprising to see backing and filling prior to the new upswing.

Short-term trading range: 2670 to 2725.  S&P has a strong band of support between 2670 and 2700. A close below 2670 will bring the early May low, around 2600, into view.  The index has resistance near 2725.  A close above that level on a weekly basis would trigger acceleration toward the March highs.

Long-term trading range: 2500 to 2870.  S&P has key support near 2600.  A close below that level will trigger a major sell signal with downside target near 2500. But it’s not expected this week.  The index has resistance just above 2700.  A sustain advance above that level could trigger acceleration toward the early 2018 highs but for now it looks firm.

In summary, S&P cleared key resistances, breaking out from a 3-month downward trend.  Consecutive close above 2700 would signify a breakout and bullish reversal, supporting upside follow-through in the weeks ahead.  However, market is short-term overbought following recent advance. There could be a sell-off in the offing but it would be shallow if so.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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