S&P must Hurdle and Sustain above 3000 to Strengthen the Bull case

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday September 26, 2019.

Stocks rose on Wednesday as upbeat trade news and strong economic data and earnings helped investors brush aside impeachment concerns. The Dow Jones Industrial Average rose 0.6 percent to 26,970.71 on Wednesday. The S&P climbed 0.6 percent to 2984.87. The Nasdaq Composite advanced 1.1 percent to 8077.38.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 6 percent to 15.98.

Sales of new U.S. single-family homes rebounded more than expected in August, the latest sign that the struggling housing market was starting to get a lift from lower mortgage rates.  The Commerce Department said on Wednesday new home sales increased 7.1 percent to a seasonally adjusted annual rate of 713,000 units last month, boosted by a surge in activity in the South and West. July’s sales pace was revised up to 666,000 units from the previously reported 635,000 units.  As such, the SPDR S&P Homebuilders ETF (XHB) jumped 1 percent for the day, and is up more than 33 percent year-to-date, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XHB.

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 Homebuilders ETF (weekly)

Our “U.S. Market Trading Map” painted XHB bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XHB has been trending lower in a short-term corrective mode after the mid-August rally ran into resistance near 44.  The September correction is testing support at the 23.6% Fibonacci retracement. Over the next few days, traders should monitor trading behavior as the September falling trend line is tested as resistance.  A sustain breakout above that level signify that the 3-week bullish flag pattern has resolved itself into a new upswing that projects to 47, or the early 2018 high.

XHB has support near 42.  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”]

S&P rebounded nicely off support at the trend channel moving average.  That level is significant in charting terms.  It acted as strong resistance throughout the August consolidation phase.  It was significant when the index climbed above it in early September. It’s now providing support.  Market internal has been strengthened.  Money flow measure trended higher from above the zero line, indicating a positive net demand for stocks.  Perhaps, the rising momentum is the best illustration for the bull case.

Right now, the most important thing to watch is the rally and retreat behaviors near 3000. The bulls must hurdle and sustain above that level to strengthen their case.

Short-term trading range: 2950 to 3068.  S&P has support near 2950.  A close below that level has measured move to 2920.  The index has resistance near 3000-3020.  A close above that level has measured move to 3040-3060.

Long-term trading range: 2820 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, there is currently a test of support at the trend channel moving average, near S&P’s 2950.  The market is no longer overbought following recent pullback but momentum is not favorable over the short to medium-term.  What the bulls want to see is S&P stabilizes and climbs above 3000.  The longer the index stays 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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