S&P’s 3400 Continues To Act As Price Magnet

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday February 13, 2020.

Stocks closed higher Wednesday, a third-straight record close this week, as easing worries over the impact of the coronavirus prompted a wave of buying across stocks with energy leading the charge.  The Dow Jones Industrial Average added 0.9 percent to 29,551.42. The S&P advanced 0.6 percent to 3,379.45 while the Nasdaq Composite gained 0.8 percent to 9,725.96.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 10 percent to close at 13.74

Stocks that were battered when fears of pandemic threatened to boil over rallied strongly, with Wynn Resorts (WYNN) and Las Vegas Sands (LVS) ending the day higher.  As such, the VanEck Vectors Gaming ETF (BJK) surged 2.5 percent on the day and is up 2 percent YTD, 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. Over the past few weeks, BJK has been trending lower in a short-term corrective mode after the October 2019 rally ran out of steam just above the 61.8% Fibonacci retracement of the 2018 downswing.  The correction found support near 40, just below the 50% Fibonacci retracement. This week’s rally pushed the ETF up against the January high, signify a bullish reversal.  This is a positive development, opened up for a retest of the January high, just below 44.  If BJK could hurdle and sustain above that level then a retest of the 2018 high, around 50, could be achieved easily.

BJK has support near 40.60.  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 February 4, 2020 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”]

The big picture remains the same. The S&P continues drifting higher after breaking out above the January high on Monday.  This is a positive development but let’s notice that with Wednesday’s gains, the index is less than 10 points to lower boundary of the red band, or extreme overbought zone.  Technically speaking, a trade above that level indicates extreme overbought conditions.  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.

Nevertheless, Money Flow measure is above the zero line, indicating a positive net demand for stocks.  This certainly would argue that the near-term risk remains to the upside.   With that said while more backing and filling would not be a surprise, if the S&P could hold above 3350 then a move above 3400 would be easier to be achieved.

Short-term trading range: 3350 to 3388.  S&P has support near 3350.  A failure to hold above that level has measured move to 3300.  The index has resistance near 3388.  A breakout above that level has measured move to around 3450.

Long-term trading range: 3200 to 3350.  S&P has support near 3200.  A failure to hold above that level has measured move to 3030.  The index has resistance near 3380.  A close above that level has measured move to 3550.

In summary, although overbought condition is keeping buyers at bay, S&P’s 3400 continues to act as price magnet.  Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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