S&P In Process of Establishing Near-term Support Plateau

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday June 19, 2020.

We’ve noted in the previous Market Outlook that: “market is in holding pattern as traders are watching to see whether or not the S&P can hold above 3100.  Market internal remains supportive, suggesting that selloff could be shallow and quick as sideline money will try to fight its way back into the market.”  As anticipated, stocks struggled for direction that saw the S&P alternated between gains and losses for most of the day.  For the day, the bench mark gauge added 0.1 percent to 3,115.34.  The Dow Jones Industrial Average fell 0.2 percent to 26,080.10. The Nasdaq Composite, meanwhile, climbed 0.3 percent to 9,943.05.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell less than 1 percent to 33.47.

On the manufacturing front, there was reason for cautious optimism as the Philly Fed’s business outlook index topped forecasts, rising to a reading of 27.5 from -43.1 the prior month.  As such, the Industrial Select Sector SPDR ETF (XLI) fell 0.37 percent on the day and is down about 14 percent YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLI.

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 – Industrial Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLI bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, XLI has been trending lower after the late March rally ran out of steam near the 1-year moving average, a key technical level based on moving averages. The correction tested support at the 67 zone.  That level roughly corresponds with the 23.6% Fibonacci retracement of the 2009-2020 major upswing.  This week’s positive turned around suggested that the support would hold and setting the stage for a retest of the 75 zone.  A close below that level on a weekly closing basis signify a bullish breakout and trigger acceleration toward the prior high set in early 2020, just above 85.

XLI has support near 67.  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 June 16, 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 continues basing sideways using the important sentiment 3100 mark as support.  Money Flow measure trended lower but still well above the zero line, indicating less supply is coming into the market.  The fact that selling pressure has eased as the S&P hovers near key price level does not favors a deep decline.  With this in mind we’d look to increase exposure into short-term market dips.

For now, 3100 is the line in the sand.  That level is significant in charting terms.  A failure to hold above it, indicating more supply is coming into the market and a much deeper pullback should be expected and we’re looking at 2950, based on the trend channel moving average.

Short-term trading range: 3000 to 3200.  S&P has support near 3100.  A failure to hold above that level has measured move to around 2950.  The index has resistance near 3200.  A breakout above that level has measured move to around 3260.

Long-term trading range: 2190 to 3600.  S&P has support near 3000.  A failure to hold above that level has measured move to 2700.  The index has resistance near 3300.  A close above that level has measured move to 3600.

In summary, current price structure suggests that the S&P is in a process of establishing a near-term support plateau from where a new up-leg will base and climb in the days ahead.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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