Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday September 21, 2020.
Stocks fell on Friday to end a volatile week as investors continued to dump shares of high-flying tech companies. The Dow Jones Industrial Average slid 0.9 percent to 27,657.42. The S&P dropped 1.1 percent to 3,319.47. The Nasdaq Composite also fell 1.1 percent to 10,793.28. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 2 percent to 25.83.
Big tech, which has led much of rebound from March, appears to be running out of steam as strong start to the week faded even as the Federal Reserve largely stuck to script and signaled near-zero rates to continue until at least 2023. Microsoft (MSFT), Amazon.com (AMZN), Facebook (FB), Alphabet (GOOGL), and Apple (AAPL) ended below the flatline. The fall in Apple this week has seen the tech giant’s valuation fall below $2 trillion. As such, the Technology Select Sector SPDR ETF (XLK) fell 1.72 percent on the day but up about 22 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in XLK.
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 – Technology Select Sector SPDR ETF (weekly)
Our “U.S. Market Trading Map” painted XLK bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLK has been trending lower in a short-term corrective mode after the spring rally found some resistance near the 127.2% Fibonacci extension. This week’s downside follow-through confirmed last week’s bearish reversal signal. This is a negative development, suggesting that XLK might have to move to a much lower level to attract new buyers and we’re looking at 103, or the July’s breakout point.
XLK has resistance near 117. 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 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”]
Key technical development in Friday session was a clear break below the trend channel moving average, the level that offered support since the S&P broke out in April. This is a negative development, indicating more supply is coming into the market. However it’s worth noticing that that all brief pullbacks throughout the summer had been met with aggressive wave of buying interest. Additionally, Money Flow measure still hangs above the zero line, indicating a weak but positive net demand for stocks. So, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakdowns are decisive. We’d turn particularly bearish if S&P closes twice below the trend channel moving average, currently at 3343.
Short-term trading range: 3300 to 3370. S&P has support around 3300. A failure to hold above that level has measured move to around 3250-3200. Resistance is around 3343. A breakout above that level has measured move to around 3370.
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, Friday’s bearish breakdown signify an imminent major trend shift. While there seems to be room to go lower, it will be important to monitor the retreat and rebound behaviors over the next few days to determine whether breakdowns are decisive. We’d turn particularly bearish if S&P closes twice below the trend channel moving average, currently at 3343.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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