Short-term Overbought Condition Keeps Buyers At Bay

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday March 13, 2019.

We’ve noted in the previous Market Outlook that: “S&P tested and held support at the early February bullish breakaway gap.  While Monday’s rally had improved the posture of our short-term indicators, which supportive of further upside probing, follow-through is the key.”  As anticipated, S&P gained 0.3 percent to close at 2,791.52 as softening inflation data and leadership from large-cap tech stocks had helped offset continued weakness in Boeing (BA).  The Nasdaq Composite advanced 0.44 percent to 7,591.03.  The Dow Jones Industrial Average fell 0.4 percent to 25,554.66.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 4 percent to 13.77.

Shares of Boeing (BA) fell for second straight day following reports that more countries, including the EU, have announced the grounding of the 737 MAX.  As such, the U.S. Global Jets ETF (JETS) fell 1.54 percent on the day but is up more than 3 percent YTD, underperformed the S&P by a wide margin.  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 JETS.

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 – U.S. Global Jets ETF (weekly)

Our “U.S. Market Trading Map” painted JETS bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, JETS has been trending lower in a short-term corrective mode after the late 2018 rally ran out of steam near the 1-year moving average.  This week selloff pushed the ETF below the 38.2% Fibonacci retracement of the 2016-2018 upswing.  The 1-year moving average also crossed below the 2-year moving average, signify a bearish reversal.  This is a negative development and increased the probability for a retest of support at the 50% Fibonacci retracement near 27.  That level roughly corresponds with the late 2018 low.  A close below 27 has measured move to around 25.30, or the 61.8% Fibonacci retracement.

JETS has resistance near 30.50.  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 bullish (buy).  Last changed March 11, 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”]

S&P moved up to test resistance at the important sentiment 2800 mark after breaking above 2770, or the lower boundary of the late February congestion zone.  Money Flow measure trended higher from above the zero line, indicating a positive net demand for socks.  Momentum indicator is also pointing from near overbought zone, producing a lift to test and exceed March highs.  Nevertheless, we’d be cautious against taking large position at this stage as market is short-term overbought following recent advance.

For the near term, the market has carved out key short-term resistance and support levels for traders to monitor.  If S&P holds above 2750, then a retest of 2817, or the October-March highs, would be easier to be achieved.

Support is at the early February bullish breakaway gap, around 2720.  A close below that level would bring the trend channel moving average, currently at 2673, into view.

Short-term trading range: 2750 to 2817.  S&P has support near 2750.  A close below that level has measured move to 2680.  The index has resistance near 2817.  A close above that level has measured move to 2900.

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, although short-term overbought condition is keeping buyers at bay, the March high, near S&P’s 2817, continues to act as price magnet.  Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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