S&P Vulnerable To Further Downside Retracement

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.

 

Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday August 1, 2019.

Stocks dropped on Wednesday as Federal Reserve Chairman Jerome Powell dampened hopes for further rate cuts later this year.  The Dow Jones Industrial Average fell 1.2 percent to close at 26,864.27. The S&P 500 slid 1.1 percent to close at 2,980.38. The Nasdaq Composite fell 1.2 percent to 8,175.42.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped more than 15 percent to close at 16.12.

The weakness in the semiconductor space was mostly attributed to Advanced Micro Devices (AMD), which tumbled more than 10 percent after cutting its full-year revenue outlook. The group, like the broader market, did extend losses during Fed Chair Powell’s press conference.  As such, the iShares PHLX Semiconductor ETF (SOXX) fell 3.32 percent on the day, bringing its year-to-date gain down to more than 33 percent, outperformed the S&P.  Now the question is whether Wednesday’s selloff is a pause that refreshes or it’s a beginning of something worse?  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 green (buy) – see area ‘A’ in the chart. SOXX has been on a tear in recent days after the late April selloff found support near the 2-year moving average, a key technical level based on moving averages.  The June rally tested resistance at the prior high set in April.  This week’s bearish reversal suggested that the resistance would hold, at least for the time being.   SOXX has support near 207.  A close below that level on a weekly basis will turn the short-term trend down and a test of the more important support near the 198 level should be expected.

SOXX has resistance near 220.  A sustain advance above that level could trigger acceleration toward the 127.2% Fibonacci extension near 230.  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 July 30, 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”]

Wednesday’s downside follow-through confirmed Tuesday’s bearish reversal signal.  As expected, the S&P moved down to test support at the early June breakout point after falling below the important sentiment 3000 mark.  This is a short-term negative development, signify an imminent trend shift.  However, Money Flow measure still above the zero line so it’d be important to monitor the retreat and rebound behaviors over the next few days to determine whether recent breakdowns are decisive.

Short-term trading range: 2950 to 3000.  S&P has support near 2950.  A close below 2950 has measured move to 2924-2900.  The index has resistance near 3000.  A close above that level has measured move to 3016.

Long-term trading range: 2800 to 3200.  S&P has support near 2948.  A close below that level has measured move to 2800.  The index has resistance near 3080.  A close above that level has measured move to 3200.

In summary, S&P broke key support Wednesday, signify a bearish breakout with downside target near 2924.  While seemingly vulnerable to further short-term weakness, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakouts are decisive.  We’d turn particular bearish if S&P closes twice below 3000.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.