S&P Rally Attempt Failed at Formidable Resistance

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday June 12, 2019.

We’ve noted in the previous Market Outlook that: “Monday’s upside follow-through had helped putting the bulls back onto the driver side of the market but it doesn’t mean that we’re out of the woods. Given the looming resistance near S&P’s 2900 there is no big commitment to accumulate stocks aggressively at this point.  With that said, the bulls need to clear 2900 quickly or market will works off oversold conditions and fall under its own weight.”  As anticipated, the S&P jumped out to a 0.8 percent gain out of the gate, traded as high as 2910, before seller stepped in and pushed prices lower.  For the day, the bench mark gauge slipped less than 0.1percent to 2,885.72.  Nasdaq Composite finished just below breakeven at 7,822.57.  The Dow Jones Industrial Average ended the day down 0.05 percent to close at 26,048.51.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed little change at 15.99.

The underperformance in the aerospace-and-defense stocks contributed to the weakness in the industrial sector after a Wall Street Journal report suggested Pentagon spending may slow down.  As such, the Industrial Select Sector SPDR ETF (XLI) fell 0.86 percent on the day and is up nearly 17 percent YTD, outperformed the S&P.  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 XLI.

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 – Industrial Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLI bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLI had been trending higher in a short-term corrective mode after the late April correction found support near the 2-year moving average, a key technical level based on moving averages.   This week’s bearish reversal suggested that the oversold bounce ran its course and a retest of support at the 73-72 zone is likely.  That level is significant in charting terms.  A close below it on a weekly basis will bring the 66 zone back into view.

XLI has resistance near 78.  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 June 4, 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, S&P sold off after the early rally attempt ran out of steam near the important sentiment 2900 mark. This level is significant when the index fell below it in May.  It’s now acting as strong resistance. Momentum shifted lower from near overbought zone, suggesting further short-term weakness likely.  Money Flow measure fell below the zone line after climbed above it yesterday, indicating an increase in selling pressure.  These are negative developments, suggesting that the index might have to move to a much lower level to attract new buyers.

Right now the most important to watch is the retreat and rebound behavior as the trend channel moving average, currently at 2872, is tested as support. A failure to hold above key support suggested that most of the potential buyers at this level had already placed their bets.  The next batch of buyers typically sits at a much lower level.

Short-term trading range: 2872 to 2900.  S&P has support near 2872.  A close below that level has measured move to 2830.  The index has resistance near 2900.  A close above that level has measured move to 2950-3000.

Long-term trading range: 2668 to 3000.  S&P has support near 2668.  A close below that level has measured move to 2550.  The index has resistance near 2780.  A close above that level has measured move to 2900.

In summary, S&P rally attempt failed at formidable resistance.  If the index fails to hold above 2870 tomorrow, then the next stop will be 2830 with the possibility of a brief breakdown below that level.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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