Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday February 16, 2021.
We’ve noted in the previous Market Outlook that: “trading behavior in the S&P constrained by a short-term sideways pattern and shown little evidence of a sustainable change in trend. While seemingly vulnerable to some short-term setback the overall technical backdrop remains positive so pullback should be short-lived.” As anticipated, S&P racked up gains into the close to end at a record high Friday, up 0.5 percent, on a rebound in cyclicals like energy and financials from weakness a day earlier and gains in tech ahead of the three-day weekend in the U.S. The Nasdaq Composite also rose 0.5 percent. The Dow Jones Industrial Average added 0.1 percent. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell 6 percent to 19.97.
Financials also participated in the broader climb in cyclicals, with bank stocks in the ascendency led by a 2% gain Wells Fargo (WFC) thanks to ongoing expectations for stronger stimulus-led recovery that has boosted U.S. bond yields. As such, the SPDR S&P Bank ETF (KBE) rose 0.81 percent on the day and is up more than 13 percent YTD, outperformed the S&P. Now the question is what’s next? Below is an update look at a trade in KBE.
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 Bank ETF (weekly)
Our “U.S. Market Trading Map” painted KBE bars in green (buy) – see area ‘A’ in the chart. Over the past few weeks, KBE has been trending lower in short-term corrective mode after the October rally ran out of steam near the late 2019 high. The correction tested and respected support at the 4-year moving average, a key technical level. Last week’s upside follow-through confirmed the prior week’s bullish reversal signal. Right now, the most important thing to watch is trading behavior as the 48 zone is tested as resistance. A close above that level on a weekly closing basis signifies a bullish breakout and trigger acceleration toward the 52 zone, or the 2018 high.
KBE has support just below 44. 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 February 2, 2021 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. The S&P continues drifting higher after breaking out above the important sentiment 3900 mark in early February. This is a positive development but let’s notice that with last week’s gains, the index is now above the lower boundary of the red band, or extreme overbought zone. Technically speaking, a trade above that level indicates extreme overbought conditions. 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.
Nevertheless, Money Flow measure is above the zero line, indicating a positive net demand for stocks. This certainly would argue that the near-term risk remains to the upside. With that said while more backing and filling would not be a surprise, if the S&P could hold above 3900 then a move above 4000 would be easier to be achieved.
Short-term trading range: 3900 to 3970. S&P has support around 3920-3900. A failure to hold above that level has measured move to around 3880. Resistance is around 3980. A sustain advance above that level has measured move to 4020.
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, although overbought condition is keeping buyers at bay, S&P’s 4000 continues to act as price magnet. Short-term traders can anticipate increase short-term volatility with rapid up and down moves in the market.
Thanks and happy trading.
(By：Michelle Mai for Capital Essence)
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