S&P Shooting Star Pattern Signals Potential Trend Reversal

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 Friday November 8, 2019.

Stocks rose to record highs on Thursday as the latest signs of progress in U.S.-China trade relations relieved investors, but a report raising fresh worries about the outlook for a deal limited the day’s gains.  China said it had agreed with the United States to remove tariffs in phases, while state-owned Xinhua News Agency said Beijing was also considering removing restrictions on poultry imports. For the day, the Dow Jones Industrial Average rose 0.66 percent to 27,674.8.  The S&P gained 0.27 percent to 3,085.18 and the Nasdaq Composite added 0.28 percent to 8,434.52.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, was up more than 2 percent to 13.10.

Chipmakers attracted strong buying support Thursday following Qualcomm Inc. (QCOM) upbeat earnings reports that saw its shares jumped 6.3 percent.  Also contributed to the overall optimism was report that U.S. and China agreed to remove existing trade tariffs. Other chipmakers, which have a sizeable exposure to China, also rose.   As such, the iShares PHLX Semiconductor ETF (SOXX) rose 0.60 percent on the day, and is up nearly 50 percent year-to-date, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in SOXX.

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 PHLX Semiconductor ETF (weekly)

Our “U.S. Market Trading Map” painted SOXX bars in green (buy) – see area ‘A’ in the chart.  SOXX has been on a tear in recent weeks after the September correction found support near the 2019 rising trend line.  This week’s rally pushed the ETF above the closely watch 230 zone, or the 127.2% Fibonacci extension, signify a bullish breakout.  A close above it on a weekly basis will confirm the bullish signal and trigger a rapid advance toward the next level of resistance just above 270, or the 161.8% Fibonacci extension.

SOXX has support near 220.  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”]

The S&P moved up to test the important sentiment 3100 zone after recent pullback found support near Monday’s bullish breakaway gap.  The index traded as high as 3097 before sellers stepped in and pushed prices off the intraday high.  In accordance to the Japanese candlestick pattern recognition, Thursday’s bearish topping tail, or shooting star candlestick, is a clear indication of supply overwhelming demand.  Adding to concerns is the overbought conditions.  While overbought condition is normal during a pro-long uptrend, it’s suggested that upside momentum might not sustain without at least a short-term breather. The overall technical backdrop, however, remains supportive.  With this in mind we’d consider increase exposure into short-term dips rather than chasing breakouts.

Short-term trading range: 3048 to 3100.  S&P has support near 3076.  A failure to hold above that level has measured move to 3048.  The index has resistance near 3100.  A breakout above that level has measured move to 3134.

Long-term trading range: 3000 to 3220.  S&P has support near 3000.  A failure to hold above that level has measured move to 2870.  The index has resistance near 3200.  A close above that level has measured move to 3340.

In summary, Thursday’s bearish shooting star candlestick together with the fact that the S&P is overbought as it tests key overhead resistance suggesting that a short-term pullback consolidation is inevitable.  There’s a high probability that the late-day selloff will momentum but an undercut below the 3050 is needed before there is any real prospect of a change in the short-term uptrend pressure.


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.