Additional Consolidations Could Unfold Between S&P 3340-3430

Editor’s note: this column was originally published on Capital Essence’s CEM News. It’s being republished as a bonus for the loyal readers. For more information about subscribing to CEM News, please click here.


Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday September 18, 2020.

We’ve noted in the previous Market Outlook that: “S&P rally attempt failed at formidable resistance.  If the index fails to climb above 3430 this week, then the next stop will be 3335 with the possibility of a brief breakdown below that level.”  As anticipated, stocks closed lower Thursday as weaker-than-expected labor and housing market raised concerns that the pace of the recovery could be on the wane, prompting investors to rein in their bullish bets on stocks.  The S&P fell 0.8 percent to 3,357.01, following a momentary dip below its trend channel moving average at around 3,339.  The Dow Jones Industrial Average fell 0.4 percent to 27,901.98.  The Nasdaq Composite Index retreated 1.3 percent to 10,910.28.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose less than 2 percent to 26.46.

Materials sidestepped the broader market weakness as Mosaic (MOS) surged more than 6 percent rebounding from weakness over the last few days after the company reported weaker revenue in August.  As such, the Materials Select Sector SPDR ETF (XLB) rose 0.74 percent on the day and up about 9 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLB.

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 – Materials Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLB bars in green (buy) – see area ‘A’ in the chart.  XLB has been on a tear in recent days after the early June correction found support near the 2020 rising trend line.  This week’s upside follow-through confirmed last week’s bullish breakout above the 2018 high.  The overall technical backdrop remains supportive of further advance.  This is a positive development, opened up for a test of the more important resistance near the 77 zone, or the 127.2% Fibonacci extension.

XLB has support near 64.  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 bearish (sell).  Last changed September 17, 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”]

Once again, the S&P moved down to test support at the trend channel moving average after last week’s rally attempt ran out of steam near the lower boundary of the pink band.  As mentioned, that level was significant when the index fell below it in late August.  Technically speaking, the longer the index holds below this resistance the stronger it becomes.  Market internal has been deteriorated following recent setback but downside momentum does not appeared strong enough to generate widespread breakouts.

Over the next few days, the most important thing to watch is the retreat and rebound behaviors as the trend channel moving average, around 3340, is tested as support. That level was tested several times over the past weeks.  When strong support is broken it means that near-term buying pressure has finally been exhausted.  With that said, a close below 3340 is outright bearish and a much deeper pullback should be expected and we’re looking at 3250-3200.

Short-term trading range: 3340 to 3430.  S&P has support around 3340.  A failure to hold above that level has measured move to around 3300-3250.  Resistance is around 3430.  A breakout above that level has measured move to around 3600.

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, S&P remains in a short-term consolidation phase that reflects an indecisive market.  Support is strong near the 3340 zone and downside momentum does not appear strong enough to generate a widespread breakdown.  Our near-term technical bias is that for the near-term further consolidations could be unfold between 3340 and 3430.  Short-term traders could play the range. However, markets are volatile and traders may prefer not to hold large positions overnight.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

© All rights reserved and actively enforced.
Note: This is a free edition of The Market Outlook, a daily CEM News subscriber newsletter. To get this column before market opens together with hundreds of technical trading ideas (including stocks and ETFs) every month, please click here.
Subscribe to CEM News to receive more in-depth research from Capital Essence.v