S&P’s Upside Gains to be Limited by Overbought Conditions

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday March 14, 2019.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, S&P traded as high as 2821.24 in early Wednesday before sellers stepped in and pushed prices off the intraday high.  For the day, the bench mark gauge rose 0.7 percent to close back above 2,810.92.  The Dow Jones Industrial Average gained 0.6 percent to close at 25,702.89. The Nasdaq Composite advanced 0.7 percent to close at 7,643.41.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 2 percent to 13.41.

Chipmakers rose broadly, led by a 3.8 percent gain in Nvidia.  As such, the VanEck Vectors Semiconductor ETF (SMH) rose 0.4 percent on the day and is up more than 19 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 SMH.

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 – VanEck Vectors Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SMH bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, SMH has been basing sideways using the 1-year moving average as support after the late December massive rally ran into resistance at the 2018 falling trend line.  This week’s impressive rebound suggested that an important near-term low has been established SMH is in an early stage of a new upswing.  Over the next few weeks, traders should monitor trading behaviors as the 106 zone is retested.  A sustain breakout above that level will bring the early 2018 highs, just above 114, back into view.

SMH has support near 100.50.  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”]

As expected, S&P moved up to test resistance at the November-March highs after recent pullback found support near the early February breakaway gap.  The benchmark index took out its November high of 2815.15 intraday but finished just below that level.  Money Flow measure trended higher from above the zero line, indicating a positive net demand for socks.  Momentum indicator is still pointing higher but the return of overbought conditions will put a cap on the upside.

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 2800, then a retest of the 2018 highs, around 2940, would be easier to be achieved

Short-term trading range: 2783 to 2878.  S&P has support near 2783.  A close below that level has measured move to 2750.  The index has resistance near 2878.  A close above that level has measured move to 2940.

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, market internal has been strengthened as S&P climbed up to test the 2815-2817 zone. Not only that this area is too big and too important to fall quickly, the return of overbought conditions on intraday basis will keep the lid of the upside.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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