Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday October 29, 2019.
Stocks closed higher Monday as investors cheered strong earnings and progress on U.S.-China trade. For the day, the S&P climbed 0.56 percent to 3,039.34. The Nasdaq Composite gained 1.01 percent to 8,325.99. The Dow Jones Industrial Average advanced 0.49 percent to 27,090.31. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, climbed more than 3 percent to 13.11.
Retailers caught a bid Monday amid strength in Tiffany & Co (TIF). The U.S. luxury jeweler surged more than 31 percent after Louis Vuitton owner LVMH made a $120 per share offer. As such, the SPDR S&P Retail ETF (XRT) rose 0.83 percent on the day, and is up over 9 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 XRT.
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 – SPDR S&P Retail ETF (weekly)
Our “U.S. Market Trading Map” painted XRT bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XRT has been trending higher after late September correction found support near the early September breakout point. This week’s upside follow-through confirmed last week’s bullish breakout above the 1-year moving average, a key technical level based on moving averages. This is a positive development, opened up for a test of the 46 zone. That level is significant in charting terms. A sustain advance above it will set the stage for a rapid advance toward the 2018 high, near 53.
XRT has support near 43. 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 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”]
Key technical development in Monday session was a close above 3,025.86, the record high of hit on July 26. This is a positive development, signify a bullish breakout and upside reversal. Money Flow measure trended higher from above the zero line, indicating an increase in buying pressure. Momentum has been strengthened but the return of overbought conditions on an intraday basis will put a cap on the upside. With this in mind, we’d look to reduce exposure into overbought strength.
Short-term trading range: 2990 to 3054. S&P has support near 3015. A close below that level has measured move to 3000. The index has resistance near 3054. A close above that level has measured move to 3100.
Long-term trading range: 2840 to 3220. S&P has support near 2840. A close below that level has measured move to 2700. The index has resistance near 3080. A close above that level has measured move to 3220.
In summary, S&P broke key resistance Monday, suggesting that the multi-month sideways trading pattern had resolved itself into a new upswing. However, given the overbought conditions and looming resistance near 3050 there is no big commitment to accumulate stocks aggressively at this point. As for strategy, traders should look to reduce exposure into overbought strength.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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