Traders Committed To Take S&P Up To 3100

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday November 11, 2019.

We’ve noted in the previous Market Outlook that: “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.”  As anticipated, the stocks traded lower in early Friday session following Donald Trump’s comment that he hadn’t decided whether to rescind tariffs on Chinese goods.  The S&P was down about 8 points before a recovery set in.  For the day, the bench mark gauge gained 0.25 percent to 3,093.08. The Dow Jones Industrial Average added 0.02 percent to 27,681.24. The Nasdaq Composite advanced 0.5 percent to 8,475.31.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, was up more than 2 percent to 13.10.

Microsoft (MSFT) and Apple (AAPL) both hit all-time intraday highs. Microsoft closed up 1.2 percent, reaching an intraday high of $145.99. Apple, up 0.27 percent on the day, hit an all-time high of $260.44.  As such, the Technology Select Sector SPDR ETF (XLK) rose 0.56 percent on the day, and is up nearly 39 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 XLK.

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 – Technology Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLK bars in green (buy) – see area ‘A’ in the chart.  Last week’s upside follow-through confirmed the early November’s bullish breakout above the prior highs set in summer 2019.  This is a positive development, setting the stage for a rapid advance toward the next level of resistance near 89, or the127.2% Fibonacci extension.  That level is significant in charting terms.  A sustain breakout above it will open up for a test of the important sentiment 100 zone, or the 161.8% Fibonacci extension.

XLK has support near 80.  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, the S&P rebounded nicely after the early weakness found support near the low 3070s zone.  The index continues drifting higher near the lower boundary of the red band, or extreme overbought zone.  As mentioned, 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.  This certainly would argue that the near-term risk remains to the upside.  With this in mind, we would consider taking down exposure into additional strength, which we think could take S&P closer to 3100 before the big reversal kicks in.

Short-term trading range: 3055 to 3105.  S&P has support near 3080.  A failure to hold above that level has measured move to 3055.  The index has resistance near 3105.  A breakout above that level has measured move to 3140.

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, S&P could continue to drift higher as trading sentiment remains strong. Our near-term work on momentum and price structure suggested that overbought conditions can be sustained for a few days, potentially allowing for a test of 3100 before a significant pullback unfolds.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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