S&P At Key Juncture

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Wednesday March 3, 2021.

Stocks fell Tuesday, as investors weighed up weakness in tech, paced by a decline in semiconductor stocks, though a gain in materials stemmed deeper losses in the broader market following a sharp rise a day earlier.  The S&P slid 0.81 percent to 3,870.29.  The Dow Jones Industrial Average fell 0.5 percent to 31,391.52.  The Nasdaq Composite dropped 1.7 percent to 13,358.79.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose more than 3 percent to 24.10.

Consumer discretionary was also among the biggest decliners, led by a fall in Target (TGT) after the retailer’s lack of guidance overshadowed fourth-quarter results that beat on both top and bottom lines, underpinned by digital sales that more than doubled.  As such, the Consumer Discretionary Select Sector SPDR ETF (XLY) fell 1.15 percent on the day and is up more than 1 percent 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 early November rally ran out of steam just above the closely watch 127.2% Fibonacci extension.  The correction is testing support at the 2020 rising trend line, the level that offered support since the ETF reached an interim low in early 2020. This history indicated an important role in terms of support.  A close below it on a weekly closing basis will break the multi-month uptrend and bring early 2020 high into view, just above 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 bullish (buy).  Last changed March 1, 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”]

As expected, S&P retreated after recent test of resistance at the important sentiment 3900 mark was met with a new wave of selling interest.  That level roughly corresponds with the lower boundary of the pink band. S&P is now at a key juncture.  It is testing formidable resistance from below.  Money Flow measure fell below the zero line, indicating a negative net demand for stocks.

For now, 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.

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 3900.  A sustain advance above that level has measured move to 3970.

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 is at key technical juncture.  Current rally is testing formidable resistance near 3900.  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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