S&P In Sideways Trend That Reflects An Indecisive Market

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.


Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday February 18, 2020.

We’ve noted in the previous Market Outlook that: “the big picture remains the same. There is an orderly high level consolidation, which represents digestion period.  The fact that the index managed to hold on to most of recent gain in the face of such extreme overbought condition, indicating an internal strength.  This increases the probability that the S&P will break out to new highs as soon as the market shakes off the excessive bullishness.”  As anticipated, S&P swung between small gains and losses Friday as investors assessed contrasting data from China on how the coronavirus is spreading.  For the day, the bench mark gauge added 0.2 percent to 3,380.16. The Nasdaq Composite also advanced 0.2 percent to 9,731.18.  The Dow Jones Industrial Average slid 0.1 percent to 29,398.08.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to close at 13.68.

Walmart (WMT) and Home Depot (HD) rose after U.S. retail sales climbed in January for a fourth straight month though the prior month’s gain was revised lower.  As such, the SPDR S&P Retail ETF (XRT) fell 0.2 percent on the day but is up more than 2 percent for the week.  Now the question is whether recent pullback is a pause that refreshes or it’s a beginning of something worse?  Below is an update look at a trade in XRT.

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 Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XRT has been trending lower in a short-term corrective mode after the late August 2019 rally ran out of steam near the 46.50 zone, or the prior high set in early 2019.  The January correction found support near the 1-year moving average, a key technical level based on moving averages. Last week’s bullish reversal signal suggested that an important near-term low has been established and XRT is in an early stage of a new upswing with initial target near 46.50.  A sustain advance above that level could trigger acceleration toward the 53 zone, or the 2018 high.

XRT has support near 43.30.  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”]

Not much has been changed.  Market is short-term overbought. S&P remains confined to a sideways trading pattern, which represented the digestion period in the aftermath of the early February massive rally.  Money Flow measure is above the zero line, indicating a positive net demand for stocks.  Technically speaking, the fact that the S&P managed to hold on to most of the massive gains in the face of overbought conditions suggested that the bulls are holding an edge for a short-term congestion mode, which is taking place within a context of an overall uptrend. With that said, if the index could hold above 3368 this week then a move above 3400 would be easier to achieve.

Short-term trading range: 3368 to 3395.  S&P has support near 3368.  A failure to hold above that level has measured move to 3325.  The index has resistance near 3395.  A breakout above that level has measured move to around 3465.

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, S&P remains in a short-term consolidation phase that reflects an indecisive market.  While overbought condition is likely keeping buyers at bay, support is strong near 3368.  While near-term risk is greater to the upside, markets are volatile and traders may prefer not to hold large positions overnight.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.