S&P’s Near-term Technical Outlook Shifted to Bearish

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 Monday September 23, 2019.

We’ve noted in the previous Market Outlook that: “Thursday’s bearish shooting star candlestick together with the fact that the S&P is overbought as it test key overhead resistance suggesting that a short-term pullback consolidation is inevitable.”  As anticipated, stocks fell Friday on news that Chinese officials were cutting short their visit to the U.S., dampening hope around trade negotiations between the two countries.  For the day, the Dow Jones Industrial Average fell 0.6 percent to 26,935.07. The S&P pulled back 0.5 percent to 2,992.09. The Nasdaq Composite dropped 0.8 percent to 8,117.67.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, jumped 9 percent to 15.32.

Chipmakers got off to a weak start and remained under pressure into the close. Xilinx (XLNX) lagged from the start after the company’s CFO resigned. Texas Instruments (TXN) lost nearly 2.0% despite increasing its quarterly dividend.  As such, the iShares PHLX Semiconductor ETF (SOXX) fell 1.84 percent for the day, but up nearly 36 percent year-to-date, outperformed the S&P.  Now the question is whether recent pullback 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 retreated after the late August rally found resistance near the closely watch 220 zone.  This is a short-term negative development, increased the probability for a retest of support at the 2019 rising trend line, around 200.  It’d be bullish if the ETF can hold above that level.  SOXX has resistance near 220.  A close above it on a weekly basis could trigger acceleration toward the next level of resistance at the 127.2% Fibonacci extension, near 230.

SOXX has support near 200.  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 to bearish (sell).  Last changed September 20, 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”]

Once again, S&P sold off after the early rally attempt ran out of steam near the closely watch 3020-3030 zone.  That level was significant when the index fell below it in July and again this past week.  Technically speaking, the longer the index holds below this resistance the stronger it becomes.  Momentum has been weakened but does not appear strong enough to generate a widespread breakdown.  Right now, the most important thing to watch is the retreat and rebound behavior near 2950, or the trend channel moving average.  A close below that level on a weekly basis will bring the August lows into view.

Short-term trading range: 2950 to 3068.  S&P has support near 2955-2950.  A close below that level has measured move to 2920.  The index has resistance near 3020.  A close above that level has measured move to 3040-3060.

Long-term trading range: 2920 to 3100.  S&P has support near 2920.  A close below that level has measured move to 2820.  The index has resistance near 3011.  A close above that level has measured move to 3100.

In summary, S&P rally attempt failed at formidable resistance.   The near-term technical outlook shifted to bearish.  If the index fails to hold above 2950 this week, then the next stop will be 2900 with the possibility of a brief breakdown below that level.


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.