S&P Could Test 3300 On Overbought Strength

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday January 3, 2020.

Wall Street’s major indexes notched record highs Thursday as fresh economic stimulus from China added to optimism fueled by easing trade tensions and an improving global outlook.  S&P gained 0.84 percent to 3,257.85.  The Dow Jones Industrial Average rose 1.16 percent to 28,868.8. The NASDAQ Composite added 1.13 percent to 9,092.19.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 10 percent to close at 12.47.

Casino operators outperformed after data from Greater China showing that gross gaming revenue in Macau fell less than expected in December. Shares of Wynn Resorts Ltd (WYNN), Las Vegas Sands Corp (LVS) and Melco Resorts & Entertainment Ltd (MLCO) rose between 2 percent and 4 percent.  As such, the VanEck Vectors Gaming ETF (BJK) jumped 2.59 percent on the day and is up about 27 percent in 2019, slightly underperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in BJK.

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 – VanEck Vectors Gaming ETF (weekly)

Our “U.S. Market Trading Map” painted BJK bars in green (buy) – see area ‘A’ in the chart.  BJK has been on a tear in recent weeks after the summer 2019 rally pushed the ETF above the 1-year moving average, a key technical level based on moving averages. The late December overbought correction tested and respected support at the 10-week moving average.  This week’s rally pushed the ETF up against formidable resistance near the 43 zone, or the 61.8% Fibonacci retracement of the 2018 downswing.  That level is significant in charting terms.  A close above it on a weekly basis will trigger upside acceleration toward the 2018 high, just above 50.

BJK has support near 41.  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”]

S&P rebounded nicely after recent pull back found support near the late December breakout point.  This is a positive development but let’s notice that Thursday’s rally pushed the index up against the lower boundary of the red band, or extreme overbought zone. As mentioned, the normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level so there is a high probability that a significant consolidation pattern will again develop in this area.

Money Flow measure flashed a bullish signal as it climbed to multi-month high, indicating a strong net demand for stocks.  This certainly would argue that the near-term risk remains to the upside.  The lower boundary of the red band, around 3258, represents key price level.  A close above that level could trigger acceleration toward 3300.

Short-term trading range: 3200 to 3231.  S&P has support near 3237.  A failure to hold above that level has measured move to 3220.  The index has resistance near 3258.  A breakout above that level has measured move to 3325.

Long-term trading range: 3050 to 3210.  S&P has support near 3130.  A failure to hold above that level has measured move to 3000.  The index has resistance near 3300.  A close above that level has measured move to 3450.

In summary, S&P could continue to drift higher as trading sentiment remains positive.  There is a high probability that overbought conditions can be sustained for a few days, potentially allowing for a test of the important sentiment 3300 mark before a significant pullback unfolds.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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