S&P Found Near-term Support Plateau

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday May 30, 2019.

We’ve noted in the previous Market Outlook that: “Tuesday’s late day selloff pushed S&P down to key support zone at the important sentiment 2800 mark.  Money Flow measure is not favorable over the near to intermediate term, suggesting the support might not hold for long.  A failure to bounce off key support means that long-term buying pressure has finally been exhausted. The stronger the support level, the more powerful the selloff.”  As anticipated, S&P was down as much as 1.3 percent on Wednesday amid trade and growth concerns, while the advance in U.S. Treasuries helped widen a key inversion within the yield curve.  A rebound in the last hour of action, however, helped the benchmark index finish lower by 0.7 percent to 2,783.02.  The Dow Jones Industrial Average dropped 0.9 percent to 25,126.41.  The Nasdaq Composite declined by 0.8 percent to 7,547.31.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose more than 2 percent to close at 17.89.

Retailers were notable laggard in the stock market following poor results and guidance from Abercrombie & Fitch (ANF) and Canada Goose (GOOS). General growth concerns also helped overlook upbeat results and guidance from Dick’s Sporting Goods (DKS).  As such, the SPDR S&P Retail EFT (XRT) tumbled 2.2 percent on the day and is down more than 1 percent YTD, underperformed the S&P.  Now the question is whether recent selloff is a beginning of and 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 EFT (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 had 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.  The mid-May selloff pushed the ETF below the late March low, signify a bearish breakout.  This is a negative development, increased the probability for a retest of the more important support near the 38 zone.  That level was tested several times over the past years.

XRT has resistance near 43.  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 22, 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”]

As expected, the S&P moved down to test support at the bottom of its short-term trading range after falling below the important sentiment 2800 zone.  In accordance to the Japanese candlestick pattern recognition, Wednesday’s bullish long tail is a clear indication of demand overwhelming supply.  This is a positive development but let’s notice that Money Flow measure and momentum had been deteriorated following recent selloff.  These elements increased the probability for further backings and fillings in the coming days.

Short-term trading range: 2766 to 2873.  S&P has support near 2766.  A close below that level has measured move to 2700.  The index has resistance near 2800.  A close above that level has measured move to 2835.

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, current price structure suggests that market has found a near-term support plateau.  S&P’s 2766 is the line in the sand.  All bets are off should the bulls fail to secure this support.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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