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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday June 18, 2018.

We’ve noted in the previous Market Outlook that: “several key technical indicators suggest that S&P is in a midst of a short-term consolidation phase.”  As anticipated, stocks closed slightly lower Friday as investor worries about a U.S.-China trade war decreased.  For the day, the Dow Jones industrial average fell 0.34 percent to close at 25,090.48. The S&P gave up 0.1 percent to close at 2,779.42. The Nasdaq composite slipped 0.1 percent to 7,746.38.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 1.16 percent to close at 11.98.

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One of the noteworthy developments in recent days has been the move in commodities.  Gold prices slumped to three-week lows on Friday as the dollar strengthened.  Spot gold was down more than 1.5 percent and hit its weakest since May 21.  Oil prices fell sharply last week as two of the world’s biggest producers, Saudi Arabia and Russia, indicated they were prepared to increase output ahead of an OPEC meeting in Vienna next week.  U.S. light crude ended Friday’s session down $1.83, or 2.7 percent, to $65.06.  As such, the Invesco DB Commodity Index Tracking Fund (DBC) fell 2.43 percent Friday, bringing its YTD gains down to just 4 percent.  Now the question is whether recent pullback is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in DBC.

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 – Invesco DB Commodity Index Tracking Fund (weekly)

Our “U.S. Market Trading Map” painted DBC bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, DBC has been trending lower after the early 2016 rally ran into resistance at the spring 2015 highs near 18.50.  Last week’s selloff pushed the DBC down to support at the 2017 rising trend line.  This level was tested several times since the ETF broke out in late 2017.  Technically speaking, the more often support is tested the weaker it becomes.  Right now the most important thing to watch is the retreat and rebound behaviors.  A close below 17.20 on a weekly basis has measured move to 16.30, or the early 2017 highs.

DBC has resistance near 18.  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 15, 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 moved down to test support at the lower boundary of the pink band after the late May rally ran out of steam near the massive 2-conjoining resistance, the February-March recoveries high and the lower boundary of the red band, near the important sentiment 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 printed a lower high as prices ascending, indicating a lack of commitment among the bulls.  These elements suggesting that the S&P might have to move to a much lower level to attract new buyers.

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, there is currently a test of support at the lower boundary of the pink band.  Momentum and Money Flow measure are not favorable over the near to intermediate term, suggesting that this is not a time to be long. What the bulls want to see is S&P stabilizes and climbs above 2800.  The longer the index stays below that level, the more vulnerable it is to lower prices.  This is the real danger in the current market.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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