S&P Dances into Increasingly Tight Trading Range

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday March 29, 2019.

Stocks rose on Thursday as trade talks between China and the U.S. restarted but fears that the economy may be slowing down put the cap on the upside.  For the day, the Dow Jones Industrial Average rose 0.4 percent to 25,717.46. The S&P also gained 0.4 percent to 2,815.44. The Nasdaq Composite advanced 0.3 percent to close at 7,669.17.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 5 percent to 14.43.

Report that a U.S. trade delegation, which included USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin, arrived in Beijing for a two-day meeting on Thursday sending the Invesco China Technology ETF (CQQQ) notably higher, up 0.86 percent on the day and is up more than 22 percent YTD, outperformed the S&P by a wide margin.  Now the question is whether the rally has more legs?  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 green (buy) – see area ‘A’ in the chart.  Over the past few weeks, CQQQ has been trending lower in a short-term corrective mode after the late 2018 rally ran out of steam near the 50 zone.  That level roughly corresponds with the 38.2% Fibonacci retracement.  The correction tested and respected support near the 50% Fibonacci retracement.  This week’s rally is testing the March falling trend line resistance.  That level is significant in charting terms. A close above that level suggested that the one month bullish flag pattern has resolved itself into a new upswing with upside target around 52-55.  A close above 55 has measured move to around 67.

CQQQ has support near 46.  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 (sell).  Last changed March 22, 2019 from bullish (buy) (see area ‘A’ in the chart).

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

Near-term picture remains the same.  There is a consolidation between the high 2780s and the lower boundary of the pink band.  That level was significant when the S&P fell below it last week.  Money Flow measure is flattening near zero line, indicating a lack of commitment. This is a short-term negative development but downside momentum does not appeared strong enough to generate widespread breakouts.  So it should not be surprising to see further backings and fillings in the coming days.  Last week’s pivot high of 2860 marks an inflection point.  A close above that level signify resumption of the multi-month rally and trigger acceleration toward 2900.  As for support, 2800 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.

Short-term trading range: 2750 to 2880.  S&P has support near 2800.  A close below that level has measured move to 2750.  The index has a strong band of resistance between 2830 and 2880.

Long-term trading range: 2640 to 2960.  S&P has support near 2750.  A close below that level has measured move to 2640.  The index has resistance near 2850.  A close above that level has measured move to 2960.

In summary, technical pressures are building up as the S&P dances its way into an increasingly tight trading range. 2800 marks the inflection point.  A failure to hold above that level indicates a change in sentiment and a much deeper pullback should be expected.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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