S&P’s Testing Formidable Resistance

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday May 15, 2019.

We’ve noted in the previous Market Outlook that: “S&P broke several key supports Monday, signify a bearish breakout.  However, intraday oversold conditions returned with Monday’s selloff, supporting a short-term rebound.”  As anticipated, the S&P advanced as much as 1.5 percent on Tuesday on positive U.S.-China trade rhetoric. The broad-based rebound effort, however, lost steam into the close, leaving the S&P up 0.8 percent to 2,834.41 for the session.  The Dow Jones Industrial Average rose 0.8 percent to 25,532.05.  The Nasdaq Composite climbed 1.1 percent to end the day at 7,734.49.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 12 percent to close at 18.06.

The lighter tone on trade led investors to pick up some of the more beaten-up stocks within the information technology, energy, industrials, and financial sectors.  As such, the Financial Select Sector SPDR ETF (XLF) rose 0.8 percent on the day and is up about 13 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 XLF.

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 – Financial Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLF bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, XLF has been trending lower in a short-term corrective mode after the late 2018 rally ran out of steam near the 2018 falling trend line.  The correction is testing support at the 1-year moving average, a key technical level based on moving averages.  That level was significant when the ETF climbed above it in early April. Should XLF managed to hold above it then a retest of the early May high, just above 28, is easier to be achieved.  A close above 28.14 has measured move to 30, or the 2018 high.

XLF has support near 26.34-26.69.  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 rebounded nicely after recent pullback found support near the important sentiment 2800 mark.  That level roughly corresponds with the upper boundary of the green band. Momentum has been strengthened but does not appear strong enough to generate widespread breakouts. Adding to concerns is the lagging Money Flow measure.  The indicator is on a verge of turning negative following recent selloff.  These elements do not favor a sustain break to the upside.  While more backing and filling would not be a surprise, a close above the trend channel moving average, currently at 2862, is required to neglect the short-term downward trend pressure.  There is a no reason to turn particularly bullish until this area is eclipsed.

For now, 2800 is the line in the sand.  A close below that level would see a massive pickup in volatility.

Short-term trading range: 2800 to 2862.  S&P has support near 2800.  A close below that level has measured move to 2775.  The index has resistance near 2862.  A close above that level has measured move to 2905.

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, Tuesday’s oversold relief bounce is testing formidable resistance at the S&P’s 2862. Momentum has been strengthened but does not appear strong enough to generate widespread breakouts.  The longer the index stays below that level, the more vulnerable it is to lower prices.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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