S&P Pressured By Short-term Negative Momentum

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Monday March 1, 2021.

The fast move up in yields, which rise when prices fall, scared stock investors in the past week, evident in choppy trading Friday. The Nasdaq fell nearly 4.9% for the week, as technology shares were hit the hardest, but the S&P was down about 2.4 percent for the week.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell more than 3 percent to 27.95.

Rising interest rates are spooking the stock market, technology and consumer discretionary sectors did among the worst this past week. Those sectors would likely also be sold more in any further pullback.  The Consumer Discretionary Select Sector SPDR ETF (XLY) fell 0.02 percent on the day and is flat YTD, underperformed the S&P.  Now the question is what’s next?  Below is an update look at a trade in XLY.

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 – Consumer Discretionary Select Sector SPDR ETF (weekly)

Our “U.S. Market Trading Map” painted XLY bars in red (sell) – see area ‘A’ in the chart. Over the past few weeks, XLY has been trending lower in a short-term corrective mode after the November rally ran out of steam just above the 127.2% Fibonacci extension.  Last week’s selloff pushed the ETF down to the 2020 rising trend line.  This level is significant in charting terms. It provided support and acted as launching pad throughout the 2020 rally.  A failure to hold above it on a weekly closing basis will break the multi-month uptrend and bring the early 2020 into view, near 130.

XLY has resistance just above 170.  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 February 25, 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, S&P moved down to test support at the trend channel moving average after falling below the lower boundary of the pink band on Thursday. Momentum indicator has been weakening following recent selloff. Money Flow measure fell below the zero line, indicating a negative net demand for stocks.

The index could signal a downward trajectory, depending on how it closes over the next few days.  The trend channel moving average, just above the important sentiment 3800 mark, represents key support.  If it closes below that level, the next leg is likely lower, and we’re looking at 3700-3670.

Short-term trading range: 3800 to 3970.  S&P has support around 3800.  A failure to hold above that level has measured move to around 3700-3670.  Resistance is around 3870.  A sustain advance above that level has measured move to 3900.

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, S&P will have a downward bias this week, pressured by short-term negative momentum but we expect support at the trend channel moving average to remain largely intact.  There is a high probability that market is in for a ‘range-bound’ trading environment.  This is a rally and retreat environment. It is not a trending environment. Short-term traders can anticipate continued volatility with rapid up and down moves in the markets.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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