S&P in Orderly Consolidation Phase

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday October 24, 2019.

Stocks closed slightly higher Wednesday, thanks to a late flurry of buying.  For the day, the S&P gained 0.3 percent to 3,004.52. The Nasdaq Composite climbed 0.2 percent to 8,119.79.  The Dow Jones Industrial Average added 0.2 percent to 26,833.95. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 14.01.

Oil prices helped energy stocks move higher, thanks to a surprise draw on oil inventories.  The U.S. Energy Information Administration reported a 1.7-million-barrel crude inventory drop for the week ended Oct.18, versus analysts’ expectations for a build of 2.2 million barrels.  WTI rose 2.7 percent to settle at 55.97 per barrel.  As such, the Energy Select Sector SPDR ETF (XLE) rose 0.83 percent for the day, and is up just over 3 percent year-to-date, underperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLE.

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 – Energy Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLE bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLE has been trending higher after late September downswing found support near the prior low set in August.  This week’s rally pushed the ETF up against the closely watch 60 zone.  A sustain advance above that level signify a bullish breakout and upside reversal and open up for a test of the 1-year moving average, just above 62.

XLE has support near 55.50.  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 shifted to bullish (buy).  Last changed October 23, 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”]

The big picture remains the same.  There is a consolidation near the lower boundary of the pink band, or overbought zone. That level roughly corresponds with the important sentiment 3000 mark.  It was significant when the S&P fell below it in July. Money Flow measure hovers near the zero line, indicating a lack of commitment.  This is a short-term negative development, suggesting further backings and fillings likely.

Short-term trading range: 2960 to 3030.  S&P has support near 2998.  A close below that level has measured move to 2960.  The index has resistance near 3020-3030.  A close above that level has measured move to 3060.

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, we wouldn’t look too much into Wednesday’s trading action because it keeps the S&P within its short-term consolidation phase.  While further backings and fillings is expected, the fact that the index manages to hold on to most of the October’s gains is pretty impressive, suggesting that S&P might break to new high as soon as the market shakes off excessive bullishness.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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