Market Internal Strengthened As S&P Climbed Above Key Level

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday October 7, 2019.

We’ve noted in the previous Market Outlook that: “S&P rebounded nicely after recent pullback found support near the lower boundary of the green band.  Our near-term work on price structure and momentum suggested that the index is in a short-term reflexive bounce.”  As anticipated, stocks closed higher on Friday as the latest U.S. jobs report hit the sweet spot with Wall Street traders.  The U.S. economy added 136,000 jobs to nonfarm payrolls in September, which was slightly below expectations but also better than expected when accounting for the upward revisions in August and July. The unemployment rate hit a 50-year low at 3.5% while average hourly earnings were unchanged.

For the day, the S&P added 1.4 percent to 2,952.01. The Nasdaq Composite gained 1.4 percent to 7,982.47. The Dow Jones Industrial Average also advanced 1.4 percent to 26,573.75. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 11 percent to 17.04.

Semis outperformed Friday after the Nikkei Asian Review reported that Apple (AAPL) asked suppliers to increase production for the iPhone 11 by up to 10 percent.  As such, the iShares PHLX Semiconductor ETF (SOXX) jumped 1.66 percent for the day, and is up more than 36 percent year-to-date, outperformed the S&P by a wide margin.  Now the question is whether rally has more legs?  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. Over the past few weeks, SOXX has been trending lower in a short-term corrective mode after the mid- August rally ran into resistance near the closely watch 220 zone, or the prior highs set earlier this year.  The September correction is testing support at the 2019 rising trend line.  Last week’s bullish long tail candlestick suggested that the support would hold.  Over the next few days, it’d be important to monitor trading behavior near the 220 zone.  A sustain advance above that level would suggest that the September bullish flag pattern has resolved itself into a new upswing that projects to 230 at minimum.

SOXX has support near 201.  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 bullish (buy).  Last changed October 4, 2019 from bearish (sell) – (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

As expected, the S&P moved up to test resistance at the trend channel moving average after falling below that level earlier last week.  The late day short covering rally pushed the index above the closely watch 2942.  This is a positive development, signify an upside breakout and bullish reversal.  Money Flow measure crossed above the zero line, indicating a positive net demand for socks.  Momentum indicator shifted higher from near oversold zone, allowing additional upside probing.  Nevertheless, upside momentum does not appear strong enough to generate widespread breakouts.  Right now follow-through is the key.  A consecutive close above 2942 will confirm Friday’s bullish reversal signal and open up for a retest of the more important resistance near the 3000 zone.

Short-term trading range: 2837 to 2943.  S&P has minor support near 2942.  A close below that level has measured move to 2927-2900.  The index has resistance near 2962.  A close above that level has measured move to 2976-3000.

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, market internal has been strengthened as S&P climbed above the trend channel moving average.  Right now follow-through is the key.  If the index could hold above 2942, then a retest of the important sentiment 3000 mark would be easier to be achieved.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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