Anticipated Some Buying Support near S&P’s 2830

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

We’ve noted in the previous Market Outlook that: “S&P broke key supports Tuesday, signify resumption of the short-term downward trend that has been in place since mid-September.”  As anticipated, stocks fell sharply on Wednesday, adding to Wall Street’s poor start to the final quarter of 2019 as investors grapple with fears of an economic recession.  For the day, the bench mark gauge slid 1.8 percent to 2,887.61. The Nasdaq Composite fell 1.6 percent to 7,785.25.  The Dow Jones Industrial Average dropped 1.9 percent to 26,078.68.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged more than 11 percent to 20.56.

Large-cap tech companies followed the broader market lower. Amazon, Apple, Alphabet, and Microsoft all dropped more than 1 percent.  As such, the Technology Select Sector SPDR ETF (XLK) tumbled nearly 2 percent for the day, but is up more than 26 percent year-to-date, outperformed the S&P.  Now the question is whether the selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in XLK.

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 – Technology Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLK bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLK has been trending lower in a short-term corrective mode after the early August rally ran into resistance near the prior highs set in late July.  This week’s massive selloff pushed the ETF below the 2019 rising trend line, the level that offered support since XLK reached an interim low in late 2018.  This is a negative development, increased the probability for a test of support ear the 73 zone.   a close below 79 on weekly basis will confirm this.

XLK has resistance near 82.  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”]

Key technical development in Wednesday session was a second close below the trend channel moving average, the level that offered support since the S&P climbed above it in early September.  This is a negative development, confirmed Tuesday’s bearish signal.  Money Flow measure fell below the zero line, another sign that selling pressure has been increased.  While seemingly vulnerable to further short-term weakness, support is strong near the 2830 zone, or the August lows.  That level roughly corresponds with the lower boundary of the green band.  These elements could help minimize downside follow-through and widespread breakdowns.

Short-term trading range: 2837 to 2945.  S&P has minor support near 2865.  A close below that level has measured move to 2837-2800.  The index has resistance near 2925.  A close above that level has measured move to 2945.

Long-term trading range: 2820 to 3100.  S&P has support near 2833.  A close below that level has measured move to 2490.  The index has resistance near 3050.  A close above that level has measured move to 3185.

In summary, Wednesday’s downside follow-through confirmed Tuesday’s bearish signal.  While seemingly vulnerable to further short-term weakness, support is strong near 2830. That level is too big and too important to fall quickly.  It could help minimize downside follow-through and widespread breakdowns.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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