S&P Trapped in Narrow Trading Range

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 March 6, 2019.

We’ve noted in the previous Market Outlook that: “S&P remains in a consolidation phase that reflects an indecisive market.  While near-term risk is greater to the downside, the long-term technical backdrop remains positive so sell-off should be shallow and quick because the sideline money will try to fight its way back into the market.”  As anticipated, the S&P dropped 0.4 percent in early action but selling efforts were tempered following the release of the stronger-than-expected New Home Sales report for December and the ISM Non-Manufacturing Index for February.  The bench mark gauge recovered some of the early loss and closed slightly lower, down 0.1 percent at 2,789.65.  The Dow Jones Industrial Average also lost 0.1 percent to 25,806.63.  The Nasdaq Composite closed just below breakeven at 7,576.36.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, gained less than 1 percent to 14.74.

Better-than-expected earnings results and guidance from Target and Kohl’s provided some support for the sector. Their solid results helped spur gains in the SPDR S&P Retail ETF (XRT) rose 0.82 percent on the day but is up more than 11 percent YTD, roughly in line with the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XRT.

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 Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in green (buy) – see area ‘A’ in the chart. The first dominant feature on the chart is the rising line starting in late 2015. XRT has been on a tear in recent weeks after the late 2018 selloff found support near the 2016-2017 lows.  The December 2018 rally pushed the ETF up against the 1-year moving average, a key technical level based on moving averages. A close above that level will trigger a new buy signal with upside target near 53, or the 2018 highs.

XRT has support near 44.65.  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 bearish (sell).  Last changed March 5, 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”]

The big picture remains the same.  There is a consolidation near the lower boundary of the pink band. That level was significant when the S&P climbed above it in late January.  Momentum indicator trended lower over the past few days but it’s much closer to overbought than oversold zone.  So it should not be surprise to see further consolidation as overbought conditions are absorbed.  While seemingly vulnerable to some short-term weaknesses, the positive Money Flow measure could help putting a short-term floor under the market.

For now, 2750 is the line in the sand.  A close below that level would see a pickup in near-term volatility.

Short-term trading range: 2750 to 2870.  S&P has support near 2765 while key support is at 2750.  A close below that level will trigger a short-term sell signal with downside target near 2680. The index has resistance near 2817.  A close above that level will bring the 2018 high, near 2940, into view.

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, S&P is trapped within narrow trading range as traders await new market moving catalysts.  Technical pressures are building up as the market dances its way into an increasingly tight trading range. S&P’s 2750 marks the inflection point.  A failure to hold above key level indicates a change in sentiment and a much deeper pullback should be expected.


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.