S&P Established Near-term Low

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 Friday May 10, 2019.

We’ve noted in the previous Market Outlook that: “momentum has weakened as S&P moved down to test support at the trend channel moving average.  The longer the index stays near that level, the more vulnerable it is to lower prices.  This is the real danger in the current market.”  As anticipated, the S&P dropped as much as 1.5 percent in early Thursday session on concerns about an elongated trade war with China before buyers stepped in and pushed prices off the intraday low.  For the day, the bench mark gauge fell 0.3 percent to 2,870.72. The Nasdaq Composite was down 0.41 percent to 7,910.59.  The Dow Jones Industrial Average fell 0.5 percent to 25,828.36.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 1 percent to close at 19.10.

Chipmakers, sensitive to higher tariffs, took a hit on Thursday as Intel fell nearly 5.3% after sinking nearly 5% in the previous session.  Nvidia and Micron also dropped about 2.1% and 1.2% respectively.  As such, the iShares PHLX Semiconductor ETF (SOXX) fell 1.10 percent on the day but is up 28 percent YTD, outperformed 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 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 red (sell) – see area ‘A’ in the chart.  The first dominant feature on the chart is the rising trend line starting in 2015.  The second dominant feature of the chart is the downward trend since 2018.  The late 2018 selloff found support near the 38.2% Fibonacci retracement, a key technical level based on Fibonacci levels.  The early 2019 rally pushed the ETF above the 2018 highs, signify a bullish reversal and upside breakout.

Over the past few weeks, SOXX has been trending lower in a short-term corrective mode as it works off overbought conditions.  The correction is testing support at the 198 zone.  That level is significant in charting terms.  It roughly corresponds with the 2018 high and the 2019 rising trend line.  A close below 198 will jeopardize the April’s bullish signal and a test of the more important support near the 185 zone should be expected.

SOXX has resistance near 218.  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 May 6, 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”]

S&P moved down to test support at the trend channel moving average after the March rally ran out of steam near the lower boundary of the red band, a key technical level. In accordance to the Japanese candlestick pattern recognition, Thursday’s bullish long tail candlestick is a clear indication of demand overwhelming supply.  If the textbook stands true then the S&P is at or very close to key turning point.

Market internal has been weakened but return of oversold conditions on an intraday basis had helped setting the stage for a short-term bounce. Money Flow measure is flashing a weak bearish signal as it’s on a verge of falling below the zero line.  The indicator printed a lower high as prices broke out to new highs in late April, indicating less money’s chasing stocks higher.  This will put a lid on the upside.

For now, 2860 is the line in the sand.  We’d turn particular bearish if the index closes twice below that level.

Short-term trading range: 2860 to 2900.  S&P has support near 2858.  A close below that level has measured move to 2775.  The index has resistance near 2900.  A close above that level has measured move to 2950-3000.

Long-term trading range: 2775 to 3000.  S&P has support near 2890.  A close below that level has measured move to 2775.  The index has resistance near 3000.  A close above that level has measured move to 3115.

In summary, S&P tested and respected support at the trend channel moving average. Thursday’s bullish reversal doji candlestick pattern suggested that an important near-term low has been established.  So it wouldn’t surprise us to see at least an attempt to rally over the next couple of days.

 

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.