S&P Established Important Near-term Low

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday September 23, 2020.

We’ve noted in the previous Market Outlook that: “our near-term work on momentum and price structure suggested strongly that Monday’s market action marked of short-term capitulation.  The S&P is setting up for a near-term relief rally.”  As anticipated, stocks rose on Tuesday, recovering from the previous session’s steep sell-off, as Amazon led shares of Big Tech higher.  The S&P added 1.1 percent to 3,315.57. The Nasdaq Composite climbed 1.7 percent to 10,963.64. The Dow Jones Industrial Average advanced 0.5 percent to 27,288.18.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 26.86.

Amazon shares rose 5. Percent, their biggest one-day rally since July 20, after a Bernstein analyst upgraded Amazon to outperform from market perform and said the pandemic has “has pulled forward secular trends, from e-commerce to digital advertising and Cloud, with Amazon as a primary beneficiary across all three revenue pools.”  As such, SPDR S&P Retail ETF (XRT) rose 2.70 percent on the day and is up about 10 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XRT.

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 S&P Retail ETF (weekly)

Our “U.S. Market Trading Map” painted XRT bars in red (sell) – see area ‘A’ in the chart.  Over the past few weeks, XRT has been trending lower in a short-term corrective mode after the summer rally ran out of steam near the prior high set in 2018.  The correction is testing support at the 2020 uptrend, around 50.  If XRT could hold above that level then a breakout above 53 would be easier to achieve.

Minor support is around 50. A close below that level on a weekly closing basis has downside target around 46-44.

XRT has resistance near 51.  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”]

As expected, the S&P bounced off support at the upper boundary of the green band as traders reacted to oversold conditions.  Tuesday’s rally is pushing the index toward the trend channel moving average, the level that offered support since the market broke out in April.  Momentum indicator shifted higher from near oversold zone, allowing additional upside probing. It will be important to monitor the rallies and retreats behaviors over the next few days to determine whether Tuesday’s turnaround is legit.

Short-term trading range: 3200 to 3348.  S&P has support around 3200.  A failure to hold above that level has measured move to around 3100.  Resistance is around 3348.  A breakout above that level has measured move to around 3410.

Long-term trading range: 3100 to 3730.  S&P has support near 3200.  A failure to hold above that level has measured move to 3100-3000.  The index has resistance near 3600.  A close above that level has measured move to 3900.

In summary, based upon recent trading actions, an important near-term low has been established and the S&P is in an early stage of a new upswing that projects to 3348 at minimum but has an overshot target near 3410.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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