S&P at Key Juncture

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 Wednesday July 11, 2018.

We’ve noted in the previous Market Outlook that: “momentum has been strengthened as S&P climbed up to test resistance at the 2800 zone. Not only that this area is too big and too important to fall quickly, the return of overbought conditions on intraday basis will keep the lid of the upside.”  As anticipated, stocks closed slightly higher Tuesday with the S&P edged up by 0.35 percent to 2,793.84.  The Dow Jones Industrial Average rose 0.58 percent to close at 24,919.66.  The Nasdaq composite also added just 0.04 percent to 7,759.20.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 0.39 percent to 12.64.


Chinese equity market was in turmoil in recent weeks amid ongoing concerns of an all-out trade war with US.  Accusing the U.S. of launching the largest trade war in economic history to date China has implemented retaliatory tariffs on 545 items worth $34B in response to the Trump administration on July 6 imposed 25 percent duties on $34 billion in Chinese imports.  The Invesco China Technology ETF (CQQQ) plunged 7.7 percent YTD.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in CQQQ.

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 China Technology ETF (weekly)

Our “U.S. Market Trading Map” painted CQQQ bars in red (sell) – see area ‘A’ in the chart.  After a strong run of outperformance since late 2015, CQQQ peaked in late 2017 and rolled over.  The mid-June selloff pushed the ETF below the 1-year moving average, the level that offered support since CQQQ broke out in mid-2016. Trading actions over the past weeks represents an orderly low level consolidation.  Right now the most important thing to watch is trading behavior near the late June low of 53.60.  A close below that level signify a bearish reversal with initial downside target just below 51.

CQQQ has resistance near 59.  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 July 9, 2018 from neutral (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

As expected, the S&P climbed up to test resistance near the important sentiment 2800 zone after recent pullback found support near the trend channel moving average.  The index is now at a key juncture.  It is testing formidable resistance from below.  Technically speaking, while the trend line testing process was normal, short-term overbought conditions suggested a cautious approach in the near-term.  For now, 2760 is the line in the sand.  A close below that level will bring the trend channel moving average into view.

Short-term trading range: 2760 to 2800.  S&P has support near 2760.  A close below that level has measured move to 2728-2700.  The index has resistance near 2800.  A close above that level would trigger acceleration toward the early 2018 high but it’s not expected this week.

Long-term trading range: 2640 to 2840.  S&P has support near 2640.  A close below that level will trigger a major sell signal with an initial downside target near 2500.  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 is at key technical juncture.  Current rally is testing formidable resistance at the important sentiment 2800 zone.  The longer the index stay below that level, the more vulnerable it is to lower prices.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.