S&P’s 2948 is the Line in the Sand

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday October 1, 2019.

We’ve noted in the previous Market Outlook that: “we wouldn’t look too much into Friday’s trading action because it keeps the S&P within its short-term consolidation phase.”  As anticipated, S&P regained most of last Friday’s losses after the Trump administration pushed back on reports from last week about the U.S. restricting Chinese companies.  For the day, the S&P added 0.5 percent to close at 2,976.73. The Nasdaq Composite advanced 0.8 percent to 7,999.34. The Dow Jones Industrial Average rose 0.4 percent to close at 26,916.83.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 5 percent to 16.24.

Another decline in oil prices, tumbled more than 3 percent to 54.12, weighed on the oil-sensitive energy stocks.  Saudi Arabia reportedly returned to normal oil output and Chinese data continued to show weakness in the country’s manufacturing sector.  Specifically, China’s official Manufacturing PMI did improve to 49.8 in September from 49.5 August, but the reading below 50.0 indicated the sector remained in contraction territory.  As such, the Energy Select Sector SPDR ETF (XLE) fell 0.72 percent for the day, but is up more than 3 percent year-to-date, significant underperformed the S&P.  Now the question is whether the selloff has more legs?  Below is an update look at a trade in XLE.

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 – Energy Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLE bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLE has been trending lower after the late August rally ran into resistance near the closely watch 1-year moving average.  The late September downswing is testing support at the 59 zone.  This level was significant when the ETF climbed above it in mid-September.  A close below that level on a weekly basis will bring the 55.50-54 zone into view.

XLE has resistance near 63.  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 near-term picture remains the same. There is a consolidation near the trend channel moving average after August’s oversold relief rally ran out of steam near the prior high set in late July. Money Flow measure trended steadily lower, indicating a lack of commitment.  While more backing and filling would not be a surprise, a close below the trend channel moving average, currently at 2948, would see a massive pickup in near-term volatility.

Short-term trading range: 2948 to 3068.  S&P has support near 2948.  A close below that level has measured move to 2924.  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, the big picture remains the same. There is a consolidation near the trend channel moving average, which represents digestion period.  S&P’s 2948 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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