Additional Consolidations Could Unfold Between S&P 2860-2900

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday April 11, 2019.

Stocks closed higher Wednesday as moderating inflation and assurance from central banks to keep rates on hold provided the broader market some support.  For the day, the S&P rose 0.4 percent.  The Dow Jones Industrial Average finished little changed while the Nasdaq Composite added 0.7 percent.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 7 percent to 13.30.

The chip industry is on a tear this year with the PHLX Semiconductor index gaining about 28 percent amid optimism over the deal between U.S and China to end a year-long trade war that badly shook the industry last year.   As such, the iShares PHLX Semiconductor ETF (SOXX) rose 0.77 percent on the day and is up about 28 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 SOXX.

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 – iShares PHLX Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SOXX bars in green (buy) – see area ‘A’ in the chart.  SOXX has been on a tear in recent months after the December selloff found support near the 38.2% Fibonacci retracement of the 2015-2018 upswing. This week’s upside follow-through confirmed last week’s bullish breakout and setting the stage for a test of the more important resistance near the 230 zone, or the 127.2% Fibonacci extension.

SOXX has support near 194.  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 April 10, 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”]

The good news here is that Wednesday rebound had brought the bulls back into the driver side of the market.  Hence, we’ll be leaning on the short-term bullish side of the fence – at least for now. However, since the index is still dealing with looming resistance at the important sentiment 2900 mark, so we don’t want to get too excited yet. Given the return of overbought conditions, the bulls need to push prices above these levels soon or we’ll be facing a retest of 2800 soon.

Short-term trading range: 2860 to 2940.  S&P has support near 2860-2845.  A close below that level has measured move to 2790.  The index has resistance near 2900.  A close above that level will bring the 2018 high, near 2940, into view.

Long-term trading range: 2770 to 2990.  S&P has support near 2770.  A close below that level has measured move to 2660.  The index has resistance near 2990.  A close above that level has measured move to 3100.

In summary, although Wednesday trading action was very encouraging, there is no reason to turn particular bullish unless the bulls manage to take out key technical resistance at the important sentiment 2900 mark on the S&P.  Our near-term technical bias is that for the near-term further consolidations could be unfold between 2860 and 2900.  Short-term traders could play the range. However, markets are volatile and traders may prefer not to hold large positions overnight.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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