S&P Constrained by Short-term Sideways Trend

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday September 24, 2019.

We’ve noted in the previous Market Outlook that: “S&P rally attempt failed at formidable resistance.   The near-term technical outlook shifted to bearish.”  As anticipated, stocks closed little changed Monday as weak economic data out of Europe stoked worries over the state of the global economy.  The S&P ended the day just below the flatline at 2,991.77. The Nasdaq Composite dipped nearly 0.1 percent to 8,112.46.  The Dow Jones Industrial Average gained 0.1percent to 26,949.99.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 3 percent to 14.91.

Most S&P sectors finished near the unchanged marks. The consumer staples sector outperformed the broader market, up 0.4 percent, while the health care and communication services sectors underperformed, fell 0.6 and 0.4 percent respectively.  As such, the Consumer Staples Select Sector SPDR ETF (XLP) rose 0.4 percent for the day, bringing its year-to-date gains up to more than 19 percent, roughly in line with the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLP.

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 – Consumer Staples Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLP bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLP has been trending lower in a short-term corrective mode after the early August rally has into resistance just below the 127.2% Fibonacci extension of the 2015-2018 upswing. The September correction tested and respected support near the 60 zone.  This is a positive development, increased the probability for a rapid advance toward the 62-62 zone, or the early August high and the 127.2% Fibonacci extension.

XLP has support near 60.  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 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”]

The S&P continues basing sideway near the lower boundary of the pink band after falling below the important sentiment 3000 mark last week.  Market internal has been weakened but downside momentum does not appeared strong enough to generate widespread breakdowns. It is no surprised that the bears were having a difficult time pushing prices far below the 3000 zone.  Right now, the most important thing to watch is the retreat and rebound behavior near 2980. A close below that level will see pick up in volatility and a retest of the trend channel moving average, around 2950, should be expected.

Short-term trading range: 2950 to 3068.  S&P has support near 2980.  A close below that level has measured move to 2950.  The index has resistance near 3000-3020.  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, trading behavior in the S&P remains constrained by a short-term sideways pattern and shown little evidence of a sustainable change in trend.  2980 is the line in the sand.  A failure to hold above that level would trigger a new sell signal and an unwelcome pickup in downside volatility.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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