Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday December 20, 2019.
Stocks pushed to new intraday highs on Thursday as investors felt better about U.S.-China trade relations and bet heavily on chip stocks. For the day, the S&P advanced 0.5 percent to 3,205.37. The Dow Jones Industrial Average climbed 0.5 percent to 28,376.96. The Nasdaq Composite gained 0.7 percent to 8,887.22. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell less than 1 percent to 12.50.
Chip stocks outperformed, partly driven by a rally in Cirrus Logic (CRUS), reportedly the possible target of Facebook (FB). As such, the iShares PHLX Semiconductor ETF (SOXX) rose 0.8 percent on the day but is up more than 58 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 days after breakout above the November falling trend line. This week’s upside follow-through confirmed last week’s bullish breakout. This is a positive development, opened up for a rapid advance toward the 161.8% Fibonacci extension near 274.
SOXX has support near 230. 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”]
Key technical development in Monday session was a clear break above the important sentiment 3200 mark. This is a positive development, signify a bullish breakout. Over the next few days, the most important to watch is trading behavior near the lower boundary of the red band, currently at 3217. As mentioned, the normal behavior for the S&P has been to consolidate and retreated almost every time it traded above the lower boundary of the red band, or extreme overbought zone, so there is a high probability that a significant consolidation pattern will again develop in this area. With that said, while the overall technical backdrop remains positive, we’d be cautious against taking large position at this stage amid overbought conditions. S&P has minor support near 3190. A close below that level could trigger a short-term correction toward the 3150 zone.
Short-term trading range: 3150 to 3214. S&P has support near 3190. A failure to hold above that level has measured move to 3158-3144. The index has resistance near 3217. A breakout above that level has measured move to 3283.
Long-term trading range: 3050 to 3210. S&P has support near 3050. A failure to hold above that level has measured move to 2930. The index has resistance near 3210. A close above that level has measured move to 3350.
In summary, Thursday’s bullish breakout above the important sentiment 3200 mark had helped putting the bulls back onto the driver side of the market. Over the next few days, we will look for trading behaviors as the S&P probes the lower boundary of the red band, or extreme overbought zone. The market had historically developed minor resistance near that level. There is no reason to turn particular bullish until overbought conditions are absorbed.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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