Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday April 27, 2020.
Stocks snapped a two-week winning streak despite closing higher on Friday as investors weighed the prospects of a potential coronavirus treatment from Gilead Sciences. For the week, the Dow Jones Industrial Average fell 1.9 percent to 23,775.27 while the S&P dropped over 1 percent to 2,836.74. The Nasdaq Composite was down 0.2 percent to 8,634.52. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 5 percent to 35.93.
Chip stocks led Friday rally, as Intel (INTC) cuts its losses, rising 0.3%, after the company reported earnings that topped estimates but pulled its guidance, stoking concerns its future growth is more likely to ease rather than accelerate. As such, the iShares PHLX Semiconductor ETF (SOXX) jumped 2.08 percent on the day but is down more than 8 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in SOXX.
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 – iShares PHLX Semiconductor ETF (weekly)
Our “U.S. Market Trading Map” painted SOXX bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, SOXX has been basing sideways using the 1-year moving average as support after the March recovery rally ran out of steam near the closely watch 235 zone. Last week’s bullish trading action suggested that the support would hold. This is a positive development, increased the probability for a retest of the early 2020 high, around 270. A close above 235 on a weekly basis will confirm this.
SOXX has support near 220. 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 shifted to bullish (buy). Last changed April 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”]
Following the late March massive rally, S&P has been coiled into a tight trading range as traders await new catalysts. Technically speaking, the fact that the S&P managed to hold on to most of the gains suggested that the bulls are in the driver side of the market. However, given the damages done over the past months, bottoming process will take more time. While near-term risk is greater to the upside, the bulls must hurdle and sustain above 2900. Staying below that level heralds more losses.
For now, 2800 represents key support. A failure to hold above that level will bring the 2700 zone into view.
Short-term trading range: 2750 to 2830. S&P has minor support near 2800. A failure to hold above that level has measured move to around 2700. The index has resistance near 2900. A breakout above that level has measured move to around 3000.
Long-term trading range: 2190 to 2950. S&P has support near 2400. A failure to hold above that level has measured move to 2000. The index has resistance near 2960. A close above that level has measured move to 3300.
In summary, S&P remains in a short-term consolidation phase that reflects an indecisive market. While near-term risk is greater to the upside, the bulls must hurdle and sustain above 2900. Staying below that level heralds more losses.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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