Path With Least Resistance Remains Higher As Long As S&P Holds Above 3100

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday July 6, 2020.

We’ve noted in the previous Market Outlook that: “Wednesday’s upside follow-through confirmed Tuesday’s bullish reversal signal.  Our near-term work on price structure and momentum suggested that the S&P is in a reflexive bounce.  Nevertheless, we will be looking for the index to close above the mid-June congestion zone before getting aggressively long again.” As anticipated, stocks opened sharply higher Thursday that saw the S&P traded as high as 3165 following a better-than-expected U.S. jobs report as the economy tries to recover from the coronavirus pandemic.  The market however, gave back most the early gains and closely slightly higher after Florida reported a one-day spike of more than 10,000 coronavirus cases. The U.S. also reported a record of more than 50,000 cases in one day on Wednesday.  For the day, the bench mark gauge rose 0.5 percent to 3,130.01.  The Dow Jones Industrial Average added 0.4 percent to 25,827.36. The Nasdaq Composite hit a record high, climbing 0.5 percent to 10,207.63.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 27.68.

Gold, a safe store of value during political and financial uncertainty, attracted buying support last week as worries over surging coronavirus cases globally and lingering trade tensions between the United States and China overshadowed strong U.S. jobs data.  As such, the SPDR Gold Shares (GLD) rose 0.22 percent on the day and is up about 17 percent YTD, outperformed the S&P.  Now the question is what’s next?  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.  After reaching a record high of 185.85 in September 2011, GLD rolled over and met anticipated support at 100, just above the 61.8% Fibonacci retracement.  The late 2014 rally pushed the ETF above the 150 zone, or the early 2013 breakdown point.  Last week’s upside follow-through confirmed the late June bullish breakout above the 2-month congestion zone.  This is a positive development, opened up for a test of the 175 zone, or the late 2011-2012 highs.  That level is significant in charting terms.  A consecutive close above it will trigger acceleration toward the all-time high set in 2011, around 185.

GLD has support near 158.  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 30, 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”]

Thursday’s upside follow-through confirmed Tuesday’s bullish breakout above the closely watch 3100 zone. Money Flow measure had trended higher from above the zero line, indicating that net demand for stocks was strong.  However, let’s notice that with last week’s gains, the S&P is now trading against the 3150-3160 zone.  That level was tested several times over the past weeks.  It acted as strong resistance since the index broke down in early June.  There is no reason to turn particularly bullish until this zone is eclipsed.

As for support, S&P must holds above 3100 on a closing basis to prevent a test of the more important support at the 3000 zone, or the trend channel moving average.  That level is significant in charting terms.  A close below that level is outright bearish and a much deeper pullback should be expected and we’re looking at 2900-2700.

Short-term trading range: 3100 to 3160.  S&P has a strong band of support near 3100.  A failure to hold above that level has measured move to around 3000.  The index has resistance near 3150-3160.  A breakout above that level has measured move to around 3220.

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, while there is a higher than average odds that the late-day selloff will momentum, the near-term technical outlook remains positive, suggesting that the path with least resistance remains higher as long as the S&P holds above 3100.  As for strategy, buying into short-term market dips remains the most profitable strategy.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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