S&P In Orderly High Level Consolidation Phase

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday July 10, 2019.

Stocks closed mixed Tuesday as investors awaited Fed Chair Jerome Powell’s testimony on monetary policy.  The S&P added 0.1 percent.  The Dow Jones Industrial Average gave up 0.1 percent and the Nasdaq Composite gained 0.5 percent.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, added more than 1 percent to close at 14.13.

Gold fell to a one-week low on Tuesday as the U.S. dollar rallied on expectations of a less aggressive interest rate cut by the Federal Reserve this month.  Spot gold fell 0.4 percent to $1,390.21 per ounce.  As such, the SPDR Gold Shares (GLD) fell 0.3 percent so far this week but is up about 9 percent YTD, underperformed the S&P.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in GLD.

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 Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, GLD has been trending lower after the late May rally ran out of steam near the 38.2% Fibonacci retracement of the 2011-2015 downswing.  Over the next few days, it’d be important to watch trading behaviors as the 130-126 zone is tested as support.  What the bulls want to see is GLD stabilizes and climbs above 135.  A close above that level signify a bullish breakout and opens up for a test of the more important resistance near the 43 zone, or the 50% Fibonacci retracement.

GLD has support near 126.  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 28, 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 continues basing sideways using the late June breakout point as support.  Money Flow measure is registering a weak bullish signal.  The indicator whipsaws around the zero line as prices tested multi-year high, suggesting less and less money are chasing the rally.  While more backing and filling would not be a surprise, a close below 2950 would see a massive pickup in volatility.  We’d turn particularly bearish if the index closes twice below that level.

Short-term trading range: 2950 to 3000.  S&P has a minor support near 2950.  A close below that level has measured move to 2935-2900.  The index has resistance near 3000.  A close above that level has measured move to 3050.

Long-term trading range: 2800 to 3200.  S&P has support near 2890.  A close below that level has measured move to 2800.  The index has resistance near 3070.  A close above that level has measured move to 3200.

In summary, recent trading actions leaving the S&P in what looks to us like an orderly high level consolidation of the late June rally.  The index is ticking ever closer to 3000.  Some aggressive traders might use this level like a magnet to sell against, but it doesn’t have much significance outside of just being a nice round number.  If the index could hold above 2950 this week then a move above 3000 would be easier to achieve.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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