S&P Resumed Multi-month Upward Trend

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Thursday November 5, 2020.

Stocks ended higher but off intraday high Wednesday, as former Vice President Joe Biden’s bid to take to White House was given a huge boost after picking up a wins in Wisconson and Michigan.  The Dow Jones Industrial Average jumped 1.3 percent to 27,847.66. The S&P rose 2.2 percent to 3,443.44 after gaining as much as 3.5% earlier in the day. The tech-heavy Nasdaq Composite popped 3.9 percent to 11,590.78.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled about 17 percent to 29.57.

Healthcare and technology led the broader market higher as the fading prospect of a blue wave eased fears that the group may come under pressure from tax hikes and intensive regulatory scrutiny.  As such, the Health Care Select Sector SPDR Fund (XLV) jumped 4.44 percent on the day and is up nearly 7 percent YTD, outperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLV.

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 – Health Care Select Sector SPDR Fund (weekly)

Our “U.S. Market Trading Map” painted XLV bars in green (buy) – see area ‘A’ in the chart.  Over the past few weeks, XLV has been trending lower in a short-term corrective mode after the late September rally ran out of steam near the prior high set in early September.  The correction tested and respected support at the one-year moving average, a key technical level based on moving averages.

This week’s rally pushed the ETF above the closely watch 110 zone, signify a bullish breakout and upside reversal.  This is a positive development, opened up for a test of the more important resistance near the 130 zone, or the 127.2% Fibonacci extension.  A close above 110 on a weekly basis will confirm this.

XLV has support around 105.  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 November 3, 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”]

Once again, the S&P climbed above the trend channel moving average after recent pullback found support near the lower boundary of the green band.  Momentum indicator shifted higher from near above the oversold zone, allowing additional upside probing.  Nonetheless, Money Flow measure is flashing a weak bullish signal as it hovers near the zero line, indicating a lack of commitment among the bulls.  This might put a cap on the upside.

Over the next few days, traders should monitor the rally and retreat behaviors as the 3400 zone is tested as support.  Consecutive close above that level will confirm the bullish signal and a trigger acceleration toward the 3550-3600 zone.

Short-term trading range: 3400 to 3400.  S&P has support around 3400.  A failure to hold above that level has measured move to around 3320.  Resistance is around 3550.  A sustain advance above that level has measured move to 3600.

Long-term trading range: 2750 to 3730.  S&P has support near 3100.  A failure to hold above that level has measured move to 2750.  The index has resistance near 3600.  A close above that level has measured move to 3900.

In summary, S&P climbed above the trend channel moving average Wednesday, signify resumption of the multi-month upward trend.  Nevertheless, it will be important to monitor the rally and retreat behaviors over the next few days to determine whether breakouts are decisive.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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