S&P Approaching Key Technical Juncture

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday August 30, 2019.

We’ve noted in the previous Market Outlook that: “there is a high probability that S&P is in for a ‘range-bound’ trading environment.  This is a rally and retreat environment. It is not a trending environment. Short-term traders can anticipate continued volatility with rapid up and down moves in the markets.”  As anticipated, the major indices regained most the prior week’s losses after China said it wished to resolve its protracted trade dispute with the world’s largest economy with a “calm” attitude.  For the day, the Dow Jones Industrial Average rose 1.3 percent to finish at 26,362.25. The S&P gained 1.3 percent to close at 2,924.58 and the Nasdaq Composite advanced 1.5 percent to 7,973.39.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 7 percent to 17.92.

Ten of the 11 S&P sectors finished in positive territory.  The industrials and information technology outperformed defensive sectors amid solid gains in the trade-sensitive spaces.  As such, the Utilities Select Sector SPDR ETF (XLU) rose 0.69 percent on the day, bringing its year-to-date gains up to more than 18 percent, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLU.

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 – Utilities Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLU bars in red (sell) – see area ‘A’ in the chart. XLU has been on a tear in recent weeks after the mid-July correction found support near the 23.6% Fibonacci retracement of the 2019 upswing.  This week’s upside follow-through confirmed last week’s bullish breakout from the 8-week congestion. This is a positive development, opened up for a test of the more important resistance at the 127.2% Fibonacci extension, just above 64.

XLU has support near 61.  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 August 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”]

Once again, the S&P rebounded nicely after recent selloff found support just above the important sentiment 2800 zone.  That level roughly corresponds with the lower boundary of the green band.  Thursday’s rally pushed the index toward the trend channel moving average.  This level was tested several times over the past months.  Technically speaking, the S&P is now at a key juncture.  It is testing formidable resistance from below.  Market internal has been strengthened following recent advance but upside momentum does not appear strong enough to generate widespread breakouts.

There is a high probability that market is in for a ‘range-bound’ trading environment.  Resistance is strong near the trend channel moving average, currently at 2945.  On the downside, support is strong near 2800.  Given the damages down over the past weeks, it makes sense to sell into rallies toward the trend channel moving average.

Short-term trading range: 2900 to 2945.  S&P has support near 2910-2900.  A close below that level has measured move to 2820-2800.  The index has resistance near 2945.  A close above that level has measured move to 3000.

Long-term trading range: 2450 to 3200.  S&P has support near 2800.  A close below that level has measured move to 2450.  The index has resistance near 3080.  A close above that level has measured move to 3200.

In summary, S&P is at key technical juncture.  Current rally is testing formidable resistance near 2945.  The longer the index stay below that level, the more vulnerable it is to lower prices.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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