S&P In Holding Pattern

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

We’ve noted in the previous Market Outlook that: “our near-term work on price structure and momentum suggested strongly that the S&P might take a breather from its recent thrust to new highs.  As for strategy, traders should consider purchase stocks during declines in the market rather than chasing breakouts.”  As anticipated, stocks closed slightly lower Tuesday as traders await the Federal Reserve latest decision on monetary policy on Wednesday. The central bank is largely expected to keep rates unchanged.  For the day, the Dow Jones Industrial Average dipped 0.10 percent to 27,881.72. The S&P fell 0.11 percent to 3,132.52. The Nasdaq Composite declined 0.07 percent to 8,616.18.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, surged more than 16 percent to 15.86.

Oil prices inched up on Tuesday as OPEC’s deal with associated producers last week to deepen output cuts in 2020 continued to provide a floor for prices.  West Texas Intermediate oil settled up 22 cents at $59.24 a barrel.  As such, the SPDR S&P Oil & Gas Exploration & Production ETF (XOP) rose 0.70 percent on the day but is down about 19 percent year to day, underperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in XOP.

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 Oil & Gas Exploration & Production ETF (weekly)

Our “U.S. Market Trading Map” painted XOP bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XOP has been trending lower after the late October oversold rebound ran out of steam near formidable resistance.  The mid-November downswing tested and respected support at the prior lows set in August and October.  This week’s rally pushed the ETF up against the 20-week moving average, a key technical level.  That level was tested several times over the past months.  A sustain advance above 22 on a weekly basis signify a bullish breakout with an upside target near 26.

XOP has support near 19.90.  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 December 6, 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”]

As expected, S&P moved down to test support at last week’s bullish breakaway gap.  That level roughly corresponds with the lower boundary of the pink band.  As mentioned, while the gap filling process was normal, the overbought conditions suggested a cautious approach over the short to medium term.  Money Flow measure however, still holds above the zero line, indicating a positive net demand for stocks.  This could help putting a short-term floor under the market.

S&P is developing a consolidation pattern between 3120 and 3150.  The development of the new uptrend starts when the S&P moves out of the congestion band.  The new uptrend is confirmed when the index is able to hurdle and sustain above 3150.  That, if happen, could trigger acceleration toward the important sentiment 3200 mark.

Short-term trading range: 3120 to 3150.  S&P has support near 3120.  A failure to hold above that level has measured move to 3048.  The index has resistance near 3150.  A breakout above that level has measured move to 3175.

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 in a holding pattern as traders wondered whether more gain is warranted given the massive advance over the past months. While the near-term technical outlook remains positive, a close above 3150 is required to neglect the short-term downward trend pressure.  On balance, we remain bullish on the S&P and looking to buy into market dips.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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