S&P Could Continue To Drift Higher As Trading Sentiment Remains Strong

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday November 30, 2020.

The S&P closed at record highs Friday, up 0.3 percent to 3,638.35, as tech continued to rack up gains to offset losses in value stocks on fears of further Covid-19 restrictions ahead as Americans travel over the holidays.  The Nasdaq Composite advanced 0.9 percent to 12,205.85 and also closed at an all-time high. The Dow Jones Industrial Average added 0.1 percent to 29,910.37.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell nearly 2 percent to 20.84.

Retailers led the early gains as investors bet on a strong holiday shopping season. Etsy shares popped 10.7 percent, and Gamestop advanced 9 percent. Amazon shares gained 0.3 percent, and Shopify climbed 1.5 percent after Adobe Analytics said Thanksgiving Day online sales rose to a record $5.1 billion.  As such, the SPDR S&P Retail ETF (XRT) rose 0.9 percent on the day and is up 33 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 green (buy) – see area ‘A’ in the chart. XRT has been on a tear in recent weeks after the early November rally pushed the ETF above the closely watch 55 zone.  That level was tested several times over the past months. The overall technical backdrop remains supportive of further advance.  Over the next few weeks, traders should monitor trading behavior as the 65 zone, or the 127.2% Fibonacci extension, is tested as resistance.

The 2020 rising trend line, round 54, represents the logical level to measure risk against.  All bets are off should XRT close below that level.

Chart 1.2 – S&P 500 index (daily)

Short-term technical outlook remains bullish (buy).  Last changed November 24, 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”]

The big picture remains the same.  S&P continues basing sideways near the lower boundary of the red band.  Momentum indicator trended higher but the indicator is much closer to overbought than oversold zone. This could put a lid on the upside.  Adding to concerns is the lagging Money Flow measure.  The indicator printed a lower high as prices ascending, indicating a lack of commitment among the bulls.  These elements will continue negatively affect trading sentiment in the coming days. Right now the most important thing to watch is trading behavior as the lower boundary of the red band, currently at 3675, is tested as resistance.  The normal behavior for the S&P has been to consolidate and retreated almost every time it traded above that level so there is a high probability that a significant consolidation pattern will again develop in this area.

Short-term trading range: 3530 to 3700.  S&P has support near 3600.  A failure to hold above that level has measured move to around 3530.  Resistance is around 3650-3675.  A sustain advance above that level has measured move to the low 3700s.

Long-term trading range: 2750 to 3730.  S&P has support near 3200.  A failure to hold above that level has measured move to 3100.  The index has resistance near 3700.  A close above that level has measured move to 3900.

In summary, overbought conditions have returned on an intraday basis but momentum remains supportive so downside risk could be limited. It is possible that S&P could continue to drift higher as trading sentiment remains strong.  As for strategy, buying into short-term dips remains the most profitable strategy.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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