Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday April 7, 2020.
Stocks closed higher Monday as traders cheered signs that measures to curb the Covid-19 pandemic in hard-hit areas like New York and New Jersey were taking shape. The rate of daily new infections and fatalities in New York had held relatively flat for a second-straight day, New York Gov. Andrew Cuomo said. Although it is still early to determine a lasting trend. For the day, the Dow Jones Industrial Average jumped more than 7 percent to 22,679.99. The S&P gained 7 percent to 2,663.68 while the Nasdaq Composite surged 7.3 percent to 7,913.24. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 45.24.
Technology led the broader rally on Wall Street, as investors piled into FANG names and chip stocks. As such, the Technology Select Sector SPDR ETF (XLK) surged 8.53 percent on the day but is down nearly 9 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 XLK.
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 – Technology Select Sector SPDR ETF (daily)
Our “U.S. Market Trading Map” painted XLK bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLK has been trending higher after the late February massive selloff found some footing near the 68 zone, or the 38.2% Fibonacci retracement of the 2009-2020 upswing and the 4-year moving average. This week’s rally pushed the ETF against the closely watch 84 zone, or the 1-year moving average. This level is significant in charting terms. A close above it on a weekly basis signify a bullish breakout and a retest of the February high is easier to be achieved.
XLK has support near 77. Short-term traders could use that level as the logical level to measure risk against.
Chart 1.2 – S&P 500 index (weekly)
Short-term technical outlook shifted to bullish (buy). Last changed April 6, 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”]
S&P rebounded nicely after last week’s pullback found support near the late March breakout point. Monday’s rally pushed the index above late week’s recovery high, signify a bullish breakout. Momentum indicator shifted higher from near oversold zone, suggesting further short-term gains likely. Nonetheless, Money Flow measure is below the zero line, indicating a negative net demand for stocks. This will put a cap on the upside.
Right now, follow-through is the key. A consecutive close above 2650 will confirm the bullish signal and setting the stage for a rapid advance toward the next level of resistance near the 2750 zone, or the 23.6% Fibonacci retracement of the 2009-2020 major upswing.
For now, the late March breakout point, around 2740, represents key support. A close below that level will invalidate Monday’s bullish reversal signal and a retest of the March low, just below 2200, should be expected.
Short-term trading range: 2520 to 2750. S&P has support near 2520-2470. A failure to hold above that level has measured move to around 2200. The index has resistance near 2750. A breakout above that level has measured move to around 2900.
Long-term trading range: 2190 to 2950. S&P has support near 2190. A failure to hold above that level has measured move to 1700. The index has resistance near 2600. A close above that level has measured move to 2950.
In summary, S&P cleared key resistance, breaking out above the late March’s recovery high. Consecutive close above 2650 would confirm Monday’s bullish reversal signal, supporting upside follow-through in the days ahead.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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