S&P In Short-term Oversold Bounce

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday September 10, 2020.

We’ve noted in the previous Market Outlook that: “while seemingly vulnerable to further short-term weakness, support is strong near 3300. That level is too big and too important to fall quickly.”  As anticipated, S&P ripped higher on Wednesday, jumped 2 percent to 3,398.96, as tech shares posted their best day in about four months, clawing back some of the steep losses that knocked the bench mark gauge below its record highs.  The Dow Jones Industrial Average added 1.6 percent to 27,940.47.  The NASDAQ Composite advanced 2.7 percent to 11,141.56.   The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 8 percent to 28.81.

Airlines however struggled, paced by a nearly 3 percent decline in United Airlines Holdings (UAL) after the carrier trimmed its third-quarter guidance on capacity and passenger revenue.  As such, the U.S. Global Jets ETF (JETS) fell 1.6 percent on the day and is down 43 percent YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in JETS.

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 – U.S. Global Jets ETF (weekly)

Our “U.S. Market Trading Map” painted JETS bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, JETS has been trending higher after the early June selloff found some solid footing near the late May breakout point.  Despite this week’s setback, the overall technical backdrop remains supportive of further advance.  JETS has resistance just above 20, or the 38.2% Fibonacci retracement.  A sustain advance above that level will open up for a test of the 50% Fibonacci retracement, around 23.

JETS has support near 16.30.  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 bearish (sell).  Last changed September 3, 2020 from bullish (buy) – (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 lower boundary of the pink band after recent pullback found support near the trend channel moving average.  That level is significant in charting terms.  A sustain advance above that level will turn the short-term trend up, confirming that the Wednesday’s recovery rally is more than a dead-cat bounce.  With that said, a close above 3430 would support upside follow-through and a test of more important resistance in the 3500 area in the coming days.  Traders however, must be mindful the damages done over the past days, there is a no reason to turn particularly bullish until the 3500 zone is eclipsed.

For now, the trend channel moving average, around 3300, represents a major price support.  A failure to hold above that level would indicate that momentum is likely shifting and a retest of the bottom of its short-term trading range should be expected.

Short-term trading range: 3300 to 3500.  S&P has support around 3300.  A failure to hold above that level has measured move to around 3250-3170.  Resistance is around 3430-3460.  A breakout above that level has measured move to around 3500.

Long-term trading range: 3100 to 3730.  S&P has support near 3300.  A failure to hold above that level has measured move to 3100.  The index has resistance near 3600.  A close above that level has measured move to 3900.

In summary, our near-term work on price structure and momentum suggested that the S&P is in a midst of a short-term oversold bounce. The bulls must hurdle and sustain above 3430 or market will work off oversold conditions and fall under its own weight.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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