S&P Held Support But Upside Could Be Limited

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 Wednesday August 14, 2019.

Stocks rallied on Tuesday after Donald Trump said he delayed delay tariffs on certain Chinese goods ahead of Christmas season to avoid potential impact on holiday shopping. He added China would very much like to make a trade deal.  For the day, the Dow Jones Industrial Average added 1.44 percent to 26,279.91. The S&P rose 1.48 percent to 2,926.32 and the Nasdaq Composite climbed 1.95 percent to 8,016.36.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled about 17 percent to 17.52.

The United States Trade Representative announced Tuesday certain products including clothing and cellphones are being removed from the tariff list based on “health, safety, national security and other factors” and will not face additional tariffs of 10 percent.  Other tariffs will be delayed to Dec. 15 from Sep. 1 for certain articles.  Retailers cheered the potential delayed rise in costs for apparel and electronics. Best Buy soared more than 6 percent, while Nike jumped 2 percent and Nordstrom also rose nearly 2 percent.

As such, the SPDR S&P Retail ETF (XRT) jumped 1.6 percent on the day but is down more than 2 percent year-to-date, underperformed the S&P.  Now the question is whether Tuesday’s rally is a beginning of a new upswing or it’s merely a dead cat bounce?  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 ETF (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 has been trending sharply lower after the early June rally ran out of steam near the September 2018 falling trend line resistance.  This week’s selloff pushed the ETF below the late May low and the late 2018 rising trend line support, signify a bearish breakout. This is a negative development, increased the probability for a retest of multi-year support near 38.

XRT has resistance near 41.30.  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 shifted bullish (buy).  Last changed August 13, 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 rebounded nicely off support at the upper boundary of the green band.  Tuesday’s rally pushed the index up against the trend channel moving average. This level was significant when the S&P fell below it in early August.  It’s now acting as strong resistance.  Money Flow measure hovers near the zero line, indicating a lack of commitment.  So it should not be surprising to see further backing and fillings as oversold condition is absorbed.

The trend channel moving average, currently at 2942, represents key resistance.  We’d turn particular positive if the index closes twice above that level.  As for support, the important sentiment 2800 mark is the line in the sand. 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 and we’re looking at 2750.

Short-term trading range: 2900 to 2942.  S&P has support near 2900.  A close below that level has measured move to 2800.  The index has resistance near 2942.  A close above that level has measured move to 2958.

Long-term trading range: 2800 to 3200.  S&P has support near 2800.  A close below that level has measured move to 2500.  The index has resistance near 3080.  A close above that level has measured move to 3200.

In summary, Tuesday’s massive rally had helped putting the bulls back into the driver side of the market.  However, given the significant damage that had been done over the past weeks, upside reward could be limited.

 

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.