Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday October 16, 2019.
Stocks closed sharply higher on Tuesday as the corporate earnings season got off to a strong start. Also contributed to the overall optimism were news that the EU and UK are nearing a draft Brexit deal and that General Motors (GM) and the UAW could also reach a deal soon. For the day, the Dow Jones Industrial Average rose 0.89 percent to 27,024.80. The S&P gained percent to 2,995.68. The Nasdaq Composite surged 1.24 percent to 8,148.71. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 7 percent to 13.53.
Financials outperformed Tuesday after JPMorgan Chase (JPM) kicked off the third quarter reporting season with better-than-expected earnings results. Wells Fargo (WFC), Citigroup (C), and Goldman Sachs (GS) all closed higher. As such, the Financial Select Sector SPDR ETF (XLF) jumped 1.44 percent for the day, and is up about 18 percent year-to-date, slightly underperformed the S&P. Now the question is whether recent the rally has more legs? Below is an update look at a trade in XLF.
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 – Financial Select Sector SPDR ETF (weekly)
Our “U.S. Market Trading Map” painted XLF bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLF has been trending higher after the late September correction found support neat the lower boundary of the rising trend channel that has been in place since early 2019. That level roughly corresponds with the 2-year moving average, a key technical level based on moving average. This week’s upside follow-through has helped pushed the ETF above the September falling trend line, opened up for a retest of 29, or the upper boundary of the rising trend channel. That level is significant in charting terms. A close above it will bring the 218 high, around 30.30, into view.
XLF has support near 26.30. 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 climbed up to test the important sentiment 3000 mark after recent pullback found support near 2960. Tuesday’s bullish trading action had helped pushed the index above the lower boundary of the pink band. Market internal has strengthened but upside momentum does not appeared strong enough to generate widespread breakouts. Over the next few days, the most important thing to watch is trading behavior as the 3000 zone is tested. S&P is now at a key juncture. It is testing formidable resistance from below. We’d turn particular bullish if S&P closes twice above that level.
Short-term trading range: 2958 to 3030. S&P has support near 2958. A close below that level has measured move to 2939. The index has resistance near 3000. A close above that level has measured move to 3020-3030.
Long-term trading range: 2840 to 3130. S&P has support near 2840. A close below that level has measured move to 2700. The index has resistance near 3070. A close above that level has measured move to 3130.
In summary, S&P climbed above the lower boundary of the pink band, clearing an important hurdle. However, given looming resistance at the important sentiment 3000 mark, there is no big commitment to accumulate stocks aggressively until this resistance zone is eclipsed. As for strategy, traders should consider buying into short-term market dips rather than chasing breakouts.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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