S&P Held Support but Follow-through is the Key

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

Stocks rose on Tuesday as strength in large-cap tech stocks offset lingering concerns over U.S.-China trade. For the day, the Dow Jones Industrial Average rose 0.44 to 25,971.06.  The S&P gained 0.4 percent to 2,887.89.  The Nasdaq Composite advanced 0.6 percent to 7,972.47.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market fell more than 6 percent to close at 13.22.


Gold turned positive on Tuesday as some aggressive traders stepped in when it approached $1,200 per ounce.  U.S. gold futures for December delivery settled up $2.40, or 0.2 percent, at $1,202.20 per ounce.  The SPDR Gold Shares (GLD) rose 0.06 percent to 113.22, down more than 8 percent YTD while the S&P gained 8 percent over the same period.  Now the question is whether Tuesday rally is merely a dead cat bounce or it’s a beginning of a new upswing?  Below is an update look at a trade in GLD.

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 – SPDR Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in green (buy) – see area ‘A’ in the chart.  Over the past few months, GLD has been trending lower after the late 2016 rally ran out of steam near the prior high set in summer 2016.  The 2018 downswing tested support at the 61.8% Fibonacci retracement of the 2016-2016 upswing.  This week’s bullish reversal bar suggested that and important near-term low has been established and GLD has embarked on a rally that should test 115 at minimum, based on the 50% Fibonacci retracement.  A close above that level on a weekly basis has measured move to around 118.

GLD has support near 111.  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 shifted to bullish.  Last changed September 1, 2018 from slightly bearish (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 rebounded nicely off support at the lower boundary of the pink band, a key technical level.  Tuesday’s gains pushed the index up against the upper limit of its one-week sideways trading range, between 2870 and 2890.  Money Flow measure crossed above the zero line, indicating a positive net demand for stocks.  This is a bullish development but let’s notice that despite recent selloff, market is much closer to overbought than oversold zone so it should not be surprise to see further consolidation as overbought conditions are absorbed.

Short-term trading range: 2800 to 2925.  S&P has support near 2870.  A close below that level will trigger a new sell signal with downside target near 2830-2800, based on the trend channel moving average and the important sentiment 2800 mark.  That level was tested several times over the past months.  Some aggressive traders might use this level like a magnet to buy.  The index has resistance near 2900.  Above it a more significant resistance lies at the lower boundary of the red band, around 2925.

Long-term trading range: 2700 to 3000.  S&P has support near 2800.  A close below that level will trigger a major sell signal with a downside target near 2700.  The index has resistance near 3000.

In summary, S&P tested and held support at the lower boundary of the pink band.  While Tuesday’s rally had improved the posture of our short-term indicators, which supportive of further upside probing, follow-through is the key.  S&P has 2890 to trade against.  If that were to break, we could see 2925 next.


Thanks and happy trading.


(By:Michelle Mai for Capital Essence)

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