Expect S&P To Draw in Buyers In Any Pullback Toward 3000

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday November 1, 2019.

Stocks fell Thursday following report said Chinese officials have doubts about whether it is possible to reach a comprehensive long-term trade deal with Washington and Donald Trump.  For the day, the Dow Jones Industrial Average fell 0.5 percent to 27,046.23. The S&P slid 0.3 percent to 3,037.56. The Nasdaq Composite fell 0.1 percent to 8,292.36.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged more than 7 percent to 13.22.

Data on Thursday showed a marginal rise in consumer spending in September, casting doubts on consumers’ ability to continue driving the economy, a key pillar of the current economic environment.  As such, the Consumer Staples Select Sector SPDR ETF (XLP) fell 0.15 percent on the day, but is up more than 20 percent year-to-date, slightly underperformed the S&P.  Now the question is whether recent selloff is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in XLP.

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 – Consumer Staples Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLP bars in green (buy) – see area ‘A’ in the chart. There is a distinct possibility that a triangle pattern is currently setting up in the weekly chart of XLP.  This week’s rally pushed the ETF up against the September falling trend line.  That level is significant in charting terms.  A sustain breakout above it signify that the 2-month triangle pattern has resolved itself into a new upswing with upside target near 63.30, or the 127.2% Fibonacci extension.

XLP has support near 60.  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”]

Once again, S&P retreated after recent rally attempt ran out of steam near the lower boundary of the red band, or extreme overbought zone.  Momentum indicator shifted lower from near overbought zone, suggesting further short-term weakness likely.  Money Flow measure trended lower from above the zero line, indicating a weak net demand for stocks.

Over the next few days, traders should look for the rally and retreat behaviors near 3025, or the prior high of hit on July 26.  A failure to hold above it suggests shows that most of the potential buyers at this level had already placed their bets.  The next batch of buyers typically sits at a much lower level. The result is that the decline has a clear run down to the next support level at the important sentiment 3000 mark.

Short-term trading range: 3000 to 3054.  S&P has support near 3025.  A close below that level has measured move to 3000.  The index has resistance near 3060.  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, based upon recent trading action, the S&P is in a short-term overbought condition.  Although seemingly vulnerable to further short-term weakness, the overall technical backdrop remains positive.  So, expect the index to draw in buyers in any pullback to the important sentiment 3000 mark.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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