S&P Upside To Be Limited By Negative Money Flow Measure

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Friday March 12, 2021.

S&P hit record highs on Thursday, jumped 1 percent to 3,939.34, led by surge in tech stocks on easing fears about a disorderly rise in U.S. rates, with some on Wall Street calling the recent selloff an opportunity to load up on growth.  The Nasdaq Composite climbed 2.5 percent to 13,398.67.  Dow Jones Industrial Average added 0.6 percent to 32485.5.. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, fell about 3 percent to 24.91.

Cyclical stocks – those that move in tandem with economy – climbed higher, though not in the same vein as recent sessions, as financials lagged the broader move higher.  As such, the SPDR S&P Bank ETF (KBE) rose 0.56 percent on the day and is up nearly 30 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.  KBE has been on a tear in recent days after January correction found support near the late 2020 rising trend line. The early February rally ran pushed the ETF above the closely watch 52 zone or the prior high set in 2018.  This is a positive development, supporting further upside follow-through.  A close above 52 on a weekly closing basis will cpnfirm the bullish signal and trigger acceleration toward the 63 zone, or the 127.2% Fibonacci extension.

XLE has support near 52.  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 9, 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”]

Once again, the S&P moved up to test resistance at the red band after recent pullback found support near the trend channel moving average.  Money Flow measure flashed a weak bullish signal, the indicator hovers near the zero line as prices ascending, suggesting that the bears are more aggressive as prices off than the bulls were as prices ascended. Momentum indicator is fast approaching overbought zone following recent advance.  This will give the bulls more pressure than they have already had.

As for support, S&P must holds above 3800 on a closing basis to prevent a test of the more important support at the 3700-3500 zone.

Short-term trading range: 3800 to 3970.  S&P has support around 3900.  A failure to hold above that level has measured move to around 3800.  Resistance is around 3970.  A sustain advance above that level has measured move to 4000.

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, the fact that Money Flow measure hovers below the zero line as S&P fast approaching key price level that had been successful in repelling price action in the past suggested that upside gains could be limited.  As for strategy, traders should consider buying into market dips rather than chasing breakouts.


Thanks and happy trading.

(By:Michelle Mai for Capital Essence)

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