S&P In Process of Establishing Key Support Plateau

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday June 14, 2019.

We’ve noted in the previous Market Outlook that: “recent trading actions leaving the S&P in what looks to us like an orderly high level consolidation of the early June rally.  The index is holding firmly above the trend channel moving average, a level it has not breached since market down in mid-May.  This is a positive development, increased the probability that the S&P will break out to new highs as soon as the market shakes off excessive bullishness.”  As anticipated, stocks closed higher Thursday on the back of strong gains in Disney and energy shares.  For the day, the S&P gained 0.4 percent to close at 2,891.64, led by the energy sector. The Nasdaq Composite advanced 0.6 percent to 7,837.13.  The Dow Jones Industrial Average added 0.4 percent to 26,106.77.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed little change at 15.82.

The consumer discretionary sector received a boost from shares of Walt Disney (DIS) after its price target was raised to $160 from $125 at Morgan Stanley.  As such, the Consumer Discretionary Select Sector SPDR ETF (XLY) rose 0.90 percent on the day and is up more than 15 percent YTD, roughly inline with the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLY.

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 – Consumer Discretionary Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLY bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLY had been trending lower in a short-term corrective mode after the late 2018 rally ran out of steam just above the prior high set in October 2018.  The May correction found support near the 1-year moving average, a key technical level based on moving averages.  This week’s bullish reversal had helped clear resistance at the May falling trend line, signify an upside breakout.  This is a positive development, opened up for a retest of the May high, just below 121.  A close above that level on a weekly basis has measured move to 132, or the 127.2% Fibonacci extension.

XLY has support near 114.  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”]

Not much has been changed.  The S&P continues basing sideways using the trend channel moving average as support.  Market internal has been weakened but downside momentum does not appear strong enough to generate a widespread breakdown.  Nevertheless, the fact that selling pressure has eased as the S&P hovers near key price level does not favors a deep decline.  With this in mind we’d look to increase exposure into short-term market dips.

Right now the most important to watch is the retreat and rebound behavior as the trend channel moving average, currently at 2873, 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: 2873 to 2900.  S&P has support near 2873.  A close below that level has measured move to 2835.  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, current price structure suggests that the S&P is in a process of establishing a near-term support plateau from where a new up-leg will base and climb in the days ahead.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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