S&P Cleared Key Resistance 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 February 13, 2019.

Stocks closed higher Tuesday as optimism that U.S. lawmakers reached a tentative agreement to prevent another government shutdown helped fuel broad-based buying interest.  For the day, the S&P climbed 1.3 percent to 2,744.73.  The Dow Jones Industrial Average rose 1.5 percent to close at 25,425.76.  The Nasdaq Composite advanced 1.46 percent to 7,414.62.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 15.43.

Bank stocks attracted strong buying support Tuesday led by gains from Goldman Sachs, Citigroup and Morgan Stanley all rose at least 1.6 percent. Bank of America and J.P. Morgan Chase also gained at least 1 percent.  As such, the SPDR S&P Regional Banking ETF (KRE) rose 1.04 percent on the day and is up more than 18 percent YTD, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in KRE.

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 S&P Regional Banking ETF (weekly)

Our “U.S. Market Trading Map” painted KRE bars in green (buy) – see area ‘A’ in the chart.  KRE has been on a tear in recent months after the late 2018 selloff found support near the 61.8% Fibonacci retracement of the 2016-2018 upswing.  Last week’s rally pushed the ETF above the 38.2% Fibonacci retracement, a key technical level based on Fibonacci levels.  This week’s upside follow-through confirmed the bullish breakout.  This is a positive development and opened up for a test of the more important resistance near the 57 zone.  A close above that level has measured move to 66, or the 2018 highs.

KRE has support near 53.  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 bullish (buy).  Last changed February 12, 2019 from bearish (sell) (see area ‘A’ in the chart).

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

Key technical development in Tuesday session was a close above 2739, the early February high.  This is a positive development, suggesting that the one-week congestion pattern has resolved itself into a new upswing.  Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure. These elements increased the probability for a test of resistance near the 2800 zone.  That level is significant in charting terms.  It roughly corresponds with the October-December 2018 highs and the upper boundary of the pink band

As for support, 2700 is the line in the sand.  The path with least resistance remains higher unless there is a close below that level.

Short-term trading range: 2700 to 2800.  S&P has psychological support at 2700 while key support is at 2677.  The index has resistance near 2744.  A sustain advance above that level has measured move to 2800.

Long-term trading range: 2500 to 2940.  S&P has support near 2620.  A close below that level has measured move to 2500.  The index has resistance near 2730.  A close above that level has measured move to 2940.

In summary, S&P cleared key resistance Tuesday, signified the one-week congestion pattern had resolved itself into a new upswing.  Nevertheless, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakouts are decisive.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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