No Big Commitment To Accumulate Stocks Aggressively At This Point

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday September 3, 2019.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, stocks opened significantly higher Friday that saw the S&P traded as high as 2940 after China’s Foreign Ministry said that U.S. and Chinese negotiators are maintaining “effective communication” as the two countries try to strike a trade deal. The market, however, quickly retreated and wavered between small gains and losses for the rest of the session.  For the day, the S&P ended just above the flatline at 2,926.46.  The Nasdaq Composite slipped 0.1 percent to 7,962.88.  The Dow Jones Industrial Average added 0.1 percent to 26,403.28.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose nearly 6 percent to 18.98.

The major indexes posted their worst monthly performance since May as U.S.-China trade relations intensified in August.  Investors loaded up on traditionally safer assets such as gold and silver. As such, the SPDR Gold Trust (GLD) rose 8 percent in August, bringing its year-to-date gains up to nearly 19 percent, outperformed the S&P.  Now the question is whether the rally has more legs?  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 Trust (weekly)

Our “U.S. Market Trading Map” painted GLD bars in green (buy) – see area ‘A’ in the chart. GLD has been on a tear in recent months after the early February correction found support near the 1-year moving average, a key technical level based on moving averages.  This month’s massive rally pushed the ETF toward the formidable resistance near the 150 zone, or the neckline of the massive 2011-2012 double top pattern.  That level was significant when GLD fell below it in 2013.  It’s now acting as strong resistance so it should not be surprising to see some profit taking efforts in the coming days.  Nevertheless, support is strong near the 137-140 zone.  This could help putting a short-term floor under the yellow metal.

GLD has resistance near 150.  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”]

As it was the case of late, Friday’s early rally attempt brought the S&P within five points of the trend channel moving average, around 2945, but the market quickly retreated and wavered between small gains and losses for the rest of the session.  As mentioned, the index is now at a key juncture.  It is testing formidable resistance from below.  Market internal has been strengthened following last week’s advance but upside momentum does not appear strong enough to generate widespread breakouts.  Over the next few days, it will be important to monitor the rally and retreat behaviors as the trend channel moving average is tested.

For now, 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, while the near-term technical outlook remains bullish, given the looming resistance near S&P’s 2945, there is no big commitment to accumulate stocks aggressively at this point.  What this means is that as the S&P inches into the area of key overhead resistance, aggressive sellers will most likely dips in their toes to see how the market reacts.  So, we’d be cautious against taking large position at this stage.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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