S&P At Key Technical Juncture

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday December 5, 2019.

Rising oil prices and hopes yet again that a phase one trade deal will finally be struck between the United States and China lifted the rest of the stock market on Wednesday.  For the day, the Dow Jones Industrial Average rose 0.5 percent to 27,649.78. The S&P added 0.6 percent to 3,112.76while the NASDAQ Composite gained 0.5 to 8,566.67.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 7 percent to 14.80.

Financial stocks were helped by rising interest rates. The 10-Year Treasury yield rose to 1.772% percent.  As such, the Financial Select Sector SPDR ETF (XLF) rose 0.95 percent on the day and is up more than 25 percent year to day, slightly outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XLF.

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 – Financial Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLF bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLF has been basing sideways near support at the upper boundary of the 2019 rising trend channel.  This level was significant when the ETF climbed above it in early November.  The fact that XLF managed to hold on to most of the October gains despite overbought conditions is impressive.  This is a positive development, suggesting that XLF will breakout to new high as soon as it works off excessive optimism.  XLF has resistance near 30.33.  A sustain breakout above that level will trigger acceleration toward the 127.2% Fibonacci extension near 34.50.

XLF has support near 29.  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 bearish (sell).  Last changed December 2, 2019 from bullish (buy) – (see area ‘A’ in the chart).

[Note: for more details analysis, please take a look at our “US Market ETF Trading Map”]

S&P moved up to test Tuesday’s bearish breakout gap after recent pull back found support near 3070.  The index is now at a key juncture.  It is testing formidable resistance from below.  Technically speaking, while the gap testing process was normal, upside momentum does not appeared strong enough to generate a decisive breakout.  Money Flow measure trended higher from above the zero line, indicating a positive net demand for stocks.  This could help putting a short-term floor under the market.  S&P has minor support near 3070.  A failure to hold above that level will trigger a new leg lower with downside target around 3036 but for now it looks firm.

Short-term trading range: 3036 to 3108.  S&P has support near 3070.  A failure to hold above that level has measured move to 3036.  The index has resistance near 3122.  A breakout above that level has measured move to 3154.

Long-term trading range: 3040 to 3360.  S&P has support near 3040.  A failure to hold above that level has measured move to 2880.  The index has resistance near 3200.  A close above that level has measured move to 3360.

In summary, S&P is at key technical juncture.  Current rally is testing resistance at Tuesday’s bearish breakaway gap.  The longer the index stay below that level, the more vulnerable it is to lower prices.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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