S&P in Range Bound Trading Environment

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday October 10, 2019.

Stocks closed higher Wednesday following report that China is ready to accept a partial trade deal, lifting investor sentiment ahead of talks that are set to begin Thursday.  For the day, the Dow Jones Industrial Average climbed 0.70 percent to 26,346.01. The S&P gained 0.91 percent to 2,919.40. The Nasdaq Composite advanced 1.02 percent to 7,903.74.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 8 percent to 18.64.

Gold stocks took a breather Wednesday after surging nearly 3 percent on Tuesday when the market began to doubt that progress would be made after the U.S. blacklisted 28 Chinese firms and imposed visa bans on Chinese officials tied to human rights abuses.  As such, the VanEck Vectors Gold Miners ETF (GDX) fell 1.09 percent for the day, but is up 33 percent year-to-date, outperformed the S&P by a wide margin.  Now the question is whether recent weakness is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in GDX.

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 – VanEck Vectors Gold Miners ETF (weekly)

Our “U.S. Market Trading Map” painted GDX bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, GDX has been trending lower in a short-term corrective mode after the late May rally ran into resistance near the prior high set in 2016.  The September correction is testing support near the 26.50 zone.  This week’s upside follow-through confirmed last week’s bullish engulfing candlestick.  Over the next few days, traders should monitor trading behavior near 28.50.  A close above that level on a weekly basis will confirm the bullish signal and opened up for a retest of the 31 zone.

GDX has support near 26.50.  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 October 8, 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”]

Once again, S&P rebounded nicely after recent pullback found support near the upper boundary of the green band.  Wednesday’s rally attempt tested resistance at the trend channel moving average.  The late day selloff suggested that the resistance would hold, at least for the time being.  This is a short-term negative development, suggesting that the index might have to move to a lower level to attract new buyers.  Perhaps the negative Money Flow measure is the best illustration of the bears’ case.

For the near term, the market has carved out key short-term resistance and support levels for traders to monitor.  For now, the trend channel moving average, currently at 2936, will continue to act as price magnet.  We’d turn bullish if the index closes twice above that level.  The lower boundary of the green band, around 2850, represents key support.  That level was tested several times over the past months.  It is too big and too important to fall quickly.

Short-term trading range: 2900 to 2942.  S&P has support near 2900.  A close below that level has measured move to 2850.  The index has resistance near 2936.  A close above that level has measured move to 2942.

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, S&P’s oversold rally is showing signs of buyer’s fatigue, noting a struggle for the index to get past the trend channel moving average.  Nevertheless, support is strong near the 2900 zone.  Our near-term view is that there is a higher than average odd that the upper and lower limit of a short-term trading range has been set between the 2950 and 2850 levels on the S&P. So until proven otherwise, the index should bounce back and forth within that 100 points range.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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