S&P Tests Support Turned Resistance

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday February 2, 2021.

Stocks closed higher Monday after a steep sell-off last week, and technology-related shares led the advance, while a move by retail traders into silver drove up mining shares.  The Dow Jones Industrial Average rose 0.76 percent to 30,211.91, the S&P gained 1.61 percent to 3,773.86 and the Nasdaq Composite added 2.55 percent to 13,403.39.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell about 9 percent to 30.24.

A move by retail traders into silver drove up precious metals.  Silver prices climbed to an eight-year peak of just over $30 an ounce before paring gains.  As such, VanEck Vectors Gold Miners ETF (GDX) jumped 3.39 percent on the day but is down about 1 percent YTD, slightly underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in GDX.

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 – VanEck Vectors Gold Miners ETF (weekly)

Our “U.S. Market Trading Map” painted GDX bars in green (buy) – see area ‘A’ in the chart.  Over the past few months, GDX has been trending lower after the epic 2020 rally ran out of steam near the 61.8% Fibonacci retracement.  The correction tested support at the 38.2% Fibonacci retracement.  This week’s massive reversal suggested that the support would hold.  Over the next few days, traders should monitor trading behavior as the 37 zone is tested as resistance.  A sustain advance above that level on a weekly closing basis will confirm the bullish signal and trigger acceleration toward the 45 zone.

GDX has support around 33.  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 January 27, 2021 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 rebounded nicely off support at the trend channel moving average.  Monday’s recovery rally tested resistance at the lower boundary of the pink band.  That level was significant when the index fell below it last week.  It’s now acting as strong resistance.  Market internal has strengthened but upside momentum does not appear strong enough to generate widespread breakouts.  While more backing and filling would not be a surprise, a close above the lower boundary of the pink band, around 3800, it is required to neglect the medium-term downward trend pressure.  There is a no reason to turn particularly bullish until this area is eclipsed.

For now, the trend channel moving average, just above 3700, is the line in the sand. We’d turn particular bearish if the index closes twice below that level.  Technically speaking, a failure to hold above key price level indicated that long-term buying pressure has been exhausted and a much deeper pullback should be expected and we’re looking at 3600.

Short-term trading range: 3700 to 3800.  S&P has support around 3700.  A failure to hold above that level has measured move to around 3600.  Resistance is around 3800.  A sustain advance above that level has measured move to 3870.

Long-term trading range: 3300 to 4300.  S&P has support near 3600.  A failure to hold above that level has measured move to 3300.  The index has resistance near 4000.  A close above that level has measured move to 4300.

In summary, Monday’s recovery rally is testing ‘support turned resistance’ near S&P’s 3800.  The short-term technical backdrop remains bearish.  The longer the index stays below that level, the more vulnerable it is to lower prices.

 

Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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