Momentums Deteriorated as S&P Struggled to Get Pass 2800

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 Thursday June 14, 2018.

Stocks fell Wednesday after the Federal Reserve hiked interest rates and indicated that two more increases are likely this year.  For the day, the Dow Jones industrial average fell 0.47 percent to finish at 25,201.20. The S&P lost 0.4 percent to close at 2,775.63.  The Nasdaq composite dropped 0.11 percent to finish at 7,695.70.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 4.86 percent to close at 12.94.

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Media and telecommunications stocks rose on Wednesday following a U.S. District Court’s decision to allow AT&T’s $85 billion bid for Time Warner.  The iShares U.S. Telecommunications ETF (IYZ) flat on the week, down 5.8 percent YTD.  Now the question is whether this week rebound is a beginning of something big or it’s merely a dead cat bounce?  Below is an update look at a trade in IYZ.

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 U.S. Telecommunications ETF (weekly)

Our “U.S. Market Trading Map” painted IYZ bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, IYZ has been trending higher in a short-term corrective mode after the May selloff found support near the February-April lows.  This week’s rally pushed the ETF up against the 20-week moving average, the level that acted as strong resistance since IYZ broke down in early 2017. In accordance to the Japanese candlestick pattern recognition, this week bearish topping tail is a clear indication of supply overwhelming demand.  This is a short-term negative development, increased the odds for a retest of the February-April lows, just above 26.  A close below that level has measured move to 24.70, based on the 50% Fibonacci retracement.

IYZ has resistance near 28.  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 June 13, 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”]

S&P retreated after recent rally ran out of steam near the massive 2-conjoining resistance, the February-March recoveries high, just below the 2800 mark.  Momentum indicator shifted lower from near overbought zone, suggesting further short-term weakness likely.  Adding to concerns is the lagging Money Flow measure.  The indicator peaked in mid-May and formed series of lower highs as prices ascending, suggesting less and less money are chasing the rally.  These elements increased the probability for a test of support near 2740-2700, based on the lower boundary of the pink band and the trend channel moving average.  A close below 2700 will bring the lower boundary of the multi-month sideways trading range, near 2650, into view.

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, momentums deteriorated as S&P struggled to get pass 2800.  The index could signal a downward trajectory, depending on how it closes over the next few days.  Initial support is defined by the lower boundary of the pink band, around 2740.  If it closes below that level, the next leg is likely lower, and we’re looking at 2700-2650.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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