Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday May 20, 2019.
Stocks closed lower on Friday following report that trade talks between China and the U.S. have stalled. For the day, the Dow Jones Industrial Average gave up 0.4 percent to close at 25,764. The S&P fell 0.6 percent to 2,859.53. The Nasdaq Composite was down 1 percent at 7,816.28. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose more than 4 percent to close at 15.96.
Semis were under selling pressure last week after the White House bans U.S. firms from using telecom gear from Huawei citing national security concerns. As such, the iShares PHLX Semiconductor ETF (SOXX) tumbled more than 5 percent on the week but is up nearly 22 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 red (sell) – see area ‘A’ in the chart. Over the past few weeks, SOXX has been trending lower in a short-term corrective mode after the late 2018 rally ran out of steam near 218. Last week’s selloff pushed the ETF below the massive 2-conjoining support near the 198 zone, the early 2018 high and the 2019 rising trend line. This is a negative development, signify a bearish breakout and downside reversal. Over the next few weeks, the most important thing to watch is trading behavior as the 180 zone, or the 1-year moving average, is tested as support. A close below that level has measured move to around 150, based on the 38.2% Fibonacci retracement and the 2018 low.
SOXX has resistance near 198. 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 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”]
Once again, the S&P fell below the trend channel moving average after climbed above that level on Thursday. This is a negative development, signify a bearish breakout and downside reversal. Money Flow measure hovers near the zero line, indicating a weak net demand for stocks. Momentum indicator shifted lower from just above the oversold zone, indicating an internal weakness. These are bearish development, suggesting that the index might have to go to much lower level to attract new buyers as soon as it works off excessive pessimism.
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: 2846 to 2864. S&P has minor support near 2846. A close below that level has measured move to 2800. The index has resistance near 2900. A close above that level has measured move to 2954.
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, daily chart of the S&P has shown signs that upside momentum is waning as the index tested key price level. While there is a high probability that the late-week selloff will momentum but a close below S&P’s 2800 is needed before there is any real prospect of a change in the short-term upward trend pressure. For now, 2800 is the line in the sand. A close below that level would see a massive pickup in volatility.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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