Bulls Need to Clear S&P’s 3000 Quickly or Market Will Fall Under its Own Weight

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.

 

Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday October 15, 2019.

We’ve noted in the previous Market Outlook that: “Friday’s bearish shooting star candlestick together with the lagging Money Flow measure suggested that a short-term pullback consolidation is inevitable.”  As anticipated, stocks closed slightly lower on Monday as new worries around a U.S.-China trade agreement emerged. The S&P dipped 0.1 percent to 2,966.15.  The Dow Jones Industrial Average gave up 0.1 percent to 26,787.36. The Nasdaq Composite also slipped 0.1 percent to 8,048.65.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 6 percent to 14.62.

Nine out of eleven S&P sectors settled in the red financials and real estate eked out slim gains.  As such, the iShares U.S. Real Estate ETF (IYR) added 0.02 percent for the day, and is up just a little more than 24 percent year-to-date, outperformed the S&P by a wide margin.  Now the question is whether recent the rally has more legs?  Below is an update look at a trade in IYR.

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 U.S. Real Estate ETF (weekly)

Our “U.S. Market Trading Map” painted IYR bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, IYR has been basing sideways near the early September high as it works off overbought conditions.  The fact that the ETF managed to hold on to all of the massive gains in the face of extreme overbought conditions indicating an internal strength.   So it seems to us that IYR would take a leg higher as soon as it shakes off excessive optimism.  Right now the most important thing to watch is the September high of 94.20.  a sustain advance above that level suggested that the 6-week pennant trading pattern has resolved itself into a new upswing with initial upside target near 100, or the 1272.% Fibonacci extension.

IYR has support near 92.70.  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 bullish (buy). Last changed October 10, 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”]

S&P is testing support at the 2960 zone after last week’s rally ran out of steam near the prior high set in September. That level roughly corresponds with the lower boundary of the pink band.  Momentum indicator shifted lower from near overbought zone, suggesting further short-term weakness likely.  Nevertheless, Money Flow measure holds above the zero line, indicating a positive net demand for stocks.  This could help putting a short-term floor under the market.

Short-term trading range: 2936 to 3000.  S&P has support near 2960.  A close below that level has measured move to 2936.  The index has resistance near 3000.  A close above that level has measured move to 3020-3030.

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, so far there was no downside follow-through to last Friday’s bearish reversal signal.  Nonetheless, momentum has weakened as S&P tests key price level.  The longer the index stays below that level, the more vulnerable it is to lower prices.  With that said, the bulls need to clear the important sentiment 3000 zone quickly or market will fall under its own weight.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.