S&P 2800 Continues to Act as Price Magnet

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

We’ve noted in the previous Market Outlook that: “our work on price pattern and momentum suggested that S&P could be in an early stage of a distribution phase.  On balance, we’re cautiously optimistic on stocks over the short-term and look to trim positions into overbought strength.”  As anticipated stocks traded higher in early Monday session that saw the S&P traded as high as 2,790.21 before sellers stepped in and pushed prices off the intraday high.  For the day, the bench mark gauge rose 0.11 percent to close at 2,782.  The Dow Jones industrial average added just 0.02 percent to close at 25,322.31.  The Nasdaq composite finished up 0.19 percent at 7,659.93.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose 1.40 percent to close at 12.35.


European markets shrugged off concerns over a tumultuous two-day summit, where Trump met with leaders from Europe and Canada, which resulted in the U.S. incumbent refusing to endorse the joint G-7 statement that called for a reduction of tariffs — sparking tensions between him and fellow G-7 leaders.  The iShares MSCI Germany ETF (EWG) rose 0.8 percent Monday, bringing its MTD gains up to 2.6 percent.  Now the question is whether the rally has more legs?  Below is an update look at a trade in EWG.

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 – iShares MSCI Germany ETF (weekly)

Our “U.S. Market Trading Map” painted EWG bars in red (sell) – see area ‘A’ in the chart. EWG has been on a tear in recent days after the late May selloff found support near the 38.2% Fibonacci retracement of the 2016-2018 upswing.  The early June rally pushed the ETF up against resistance at the 4-year moving average.  That level was significant in charting terms.  It provided support throughout the 2016-2018 rally.  This history indicated an important role in term of resistance.  Right now the most important thing to watch is trading behavior near 32.50.  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.   EWG has support just below 31.  A close below that level has measured move to 29, based on the 50% Fibonacci retracement

EWG has resistance near 32.50.  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 June 1, 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”]

S&P moved up to test resistance at the upper boundary of the sideways trading range that has been in place since early February.  Money Flow measure is registering a weak bullish signal.  The indicator peaked in mid-May and formed series of lower highs as prices ascending, suggesting less and less money are chasing the rally.  Additionally, short-term momentum indicator had reached extreme overbought following recent advance.  These elements suggested that the resistance would hold, at least for the time being.

Short-term trading range: 2740 to 2800.  S&P has minor support near 2740.  A close below that level has measured move to 2700.  The index has resistance near 2800-2814, based on the late February and early March highs and the upper boundary of its short-term trading range.  The market had historically developed important near-term top around that level.

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, although short-term overbought condition is keeping buyers at bay, S&P’s 2800 continues to act as price magnet.  Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.

Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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