S&P Vulnerable to Downside Retracement as Bulls are Losing Control of the Market

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 Monday July 2, 2018.

We’ve noted in the previous Market Outlook that: “our near-term work on price structure and momentum suggested that the S&P is in an early stage of a short-term oversold bounce.”  As anticipated, stocks traded higher in early Friday session that saw the S&P traded as high as 2,743 but a late-session sell-off in bank shares knocked the bench mark gauge from its high.  For the day, the S&P gained 0.1 percent to close at 2,718.37.  The Dow Jones Industrial Average rose 0.23 percent to 24,271.41.  The Nasdaq composite also advanced 0.1 percent to 7,510.30.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 4.51 percent to close at 16.09.

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Oil prices rose on Friday as U.S. sanctions against Iran threatened to remove a substantial volume of crude from world markets at a time of rising global demand.  During the final week of the second quarter of 2018 NYMEX crude oil rallied and moved to the highest price since November 2014.  U.S. West Texas Intermediate (WTI) crude ended Friday’s session up 70 cents, or 1 percent, at $74.15.  As such, the Invesco DB Commodity Index Tracking Fund (DBC) rose 1.14 percent to 17.68, up 6.4 percent YTD.  Now the question is whether the rally has more legs?  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 green (buy) – see area ‘A’ in the chart.  Over the past few weeks, DBC has been trending lower in a short-term corrective mode as the 2017 recovery rally ran out of steam near the 2015 highs.  The late May selloff tested and respected support at the 2017 rising trend line.  That level roughly corresponds with the 23.6% Fibonacci retracement of the 2016-2018 upswing.  Last week’s massive bullish engulfing bar is a clear indication of demand overwhelming supply.  This is a short-term positive development, opened up for a retest of the early 2018 high, around 18.40.  That level is significant in charting terms. A sustain advance above that level would trigger acceleration toward the next level of resistance, near 20.40.

Support is strong near 17.  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 bearish.  Last changed June 25, 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”]

The big picture remains the same.  There is currently a test of support at the trend channel moving average after the May rally ran out of steam near the February-March highs.  Momentum indicator trended higher from near oversold zone, suggesting further short-term gains likely.  Nevertheless, the lagging Money Flow measure suggested that the bears are more aggressive as prices dropped than the bulls were as prices ascended.  These elements suggested that the S&P might have to move to a much lower level to attract near buyers as soon as the market worked off short-term oversold conditions.

Short-term trading range: 2700 to 2753.  S&P has support near 2717.  Below it, a more significant support lies at 2700.  This creates a strong band of support between 2717 and 2700.  A close below 2700 on a weekly basis has measured move to 2640.  The index has resistance near 2753.  A close above that level would trigger acceleration toward the 2800 zone.

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, there is currently a test of support at the trend channel moving average after the May rally ran out of steam near the important sentiment 2800 mark.  Nevertheless, the fact that the S&P is basing sideways as market worked off short-term oversold conditions, suggested that the bulls are losing control and that market is vulnerable to further downside retracement.

Thanks and happy trading.

 

(By:Michelle Mai for Capital Essence)

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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.

S&P must Hurdle and Sustain above 2800 to Strengthen the Bull case

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 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)

© 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.