Additional Consolidations Could Unfold between S&P’s 2600-2200 Zone

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday March 26, 2020.

We’ve noted in the previous Market Outlook that: “Tuesday’s massive recovery rally helped putting the bulls back onto the driver side of the market but it doesn’t mean that we’re out of the woods.  Given the looming resistance near S&P’s 2450, there is no big commitment to accumulate stocks aggressively at this point.”  As anticipated, stocks traded significantly higher for most on Wednesday session that saw the S&P traded as high as 2571 before gave back most of the gains into the close.  For the day, the bench mark gauge rose 1.1 percent to 2,475.56. The Dow Jones Industrial Average climbed more than 2 percent to 21,200.55.  The Nasdaq Composite dipped 0.5 percent to 7,384.30 as Facebook, Amazon Apple, Netflix and Google-parent Alphabet all closed lower.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose more than 3 percent to 63.95.

Investors cashed out the yellow metal a day after chasing it to just a whisker shy of $1,700 an ounce on Tuesday. The surge in gold prices this week has been spectacular with the Fed’s massive QE program and a $2 trillion U.S. government stimulus package to soften the economic damage of the coronavirus outbreak.  As such, the SPDR Gold Shares (GLD) fell 1.37 percent on the day but is up about 6 percent YTD, outperformed the S&P.  Now the question is whether the rally has more legs?  Below is an update look at a trade in GLD.

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 Gold Shares (weekly)

Our “U.S. Market Trading Map” painted GLD bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, GLD has been trending lower in a short-term corrective mode after the late 2019 rally ran out of steam near the 2013 breakdown point.  The March correction tested support at the 1-year moving average, a key technical level based on moving averages.  This week’s bullish reversal suggested that the support would hold and opened up for a test of the 152-160 zone, or the 23.6% Fibonacci retracement of the 2005-2011 major upswing and the 2013 breakdown point.  A close above 160 on a weekly closing basis will confirm the bullish signal and a retest of the 2011 high, around 185, should be expected.

GLD has support near 138.  A close below that level has measured move to around 42.

Chart 1.2   – S&P 500 index (weekly)

Short-term technical outlook remains bullish (buy).  Last changed March 24, 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”]

As expected, S&P moved up to test resistance at the 2520-2600 zone following Tuesday’s upside breakout.  Wednesday’s upside follow-through confirmed the bullish signal. This is a positive development but the late day selloff suggested that we’re not out of the woods.  Money Flow measure trended higher from below the zero line, indicating that selling pressure has eased. These elements increased the probability for further backings and fillings in the coming days.

Tuesday’s bullish breakaway gap, around 2350, represents key support.  A failure to hold above that level will bring the 2200 back into view.

On the upside, the S&P has 2600 to trade against.  A sustain advance above that level will turn the medium-term trend up and trigger acceleration toward 2900.

Short-term trading range: 2200 to 2600.  S&P has support near 2350.  A failure to hold above that level has measured move to around 2200.  The index has resistance near 2600.  A breakout above that level has measured move to around 2900.

Long-term trading range: 2000 to 3000.  S&P has support near 2260.  A failure to hold above that level has measured move to 2000.  The index has resistance near 2600.  A close above that level has measured move to 2900.

In summary, current price structure suggests that market is in a process of establishing an important near-term support plateau. There is a high probability of a period of consolidation activity between S&P’s 2600 and 2200 that may last several days.  This consolidation band provides a rally and retreat trading environment for traders.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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