S&P Must Hurdle and Sustain Above 2862

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday May 16, 2019.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, the S&P opened sharply lower amid concerns about slowing growth. The bench mark gauge however, managed to overcome the early weakness and closed higher, up 0.6 percent to 2,850.96.  The Dow Jones Industrial Average added 0.5 percent to 25,648.02.  The Nasdaq Composite rose 1.1 percent to 7,822.15.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 9 percent to close at 16.45.

Retail stocks were under selling pressure Wednesday after .S. and China released weaker-than-expected figures for retail sales and industrial production for April. Specifically, U.S. retail sales declined 0.2 percent.  As such, the SPDR S&P Retail ETF (XRT) fell 0.26 percent on the day but is up nearly 5 percent YTD, underperformed the S&P.  Now the question is whether recent selloff is a beginning of an end or there’re more pains ahead?  Below is an update look at a trade in XRT.

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 – SPDR S&P Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in red (sell) – see area ‘A’ in the chart.  Over the past few weeks, XRT has been trending lower after the late 2018 rally ran out of steam near the 1-year moving average, a key technical level based on moving averages.  That level was significant when the ETF fell below it in late 2018. This week’s selloff pushed the XRT below the prior low set in late March, signify a bearish breakout.  This is a negative development, increased the probability for a retest of the late 2018 low, around 38.

XRT has resistance near 46.75.  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 May 15, 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 trend channel moving average after recent pullback found support near the important sentiment 2800 mark.  That level roughly corresponds with the upper boundary of the green band.  Market internal has been strengthened but does not appear strong enough to generate widespread breakouts.  While more backing and filling would not be a surprise, a close above the trend channel moving average, currently at 2864, is required to neglect the short-term downward trend pressure.  We’d turn particularly bullish if the S&P closes twice above that level.

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 2864.  S&P has support near 2800.  A close below that level has measured move to 2775.  The index has resistance near 2864.  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, there is currently a test of resistance at the trend channel moving average.  Momentum is not favorable over the near to intermediate term, suggesting that this is not a time to be long. What the bulls want to see is S&P stabilizes and climbs above 2862.  The longer the index stays below that level, the more vulnerable it is to lower prices.  This is the real danger in the current market.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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