S&P’s 4200 Continues To Act As Price Magnet

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Good Morning, this is Capital Essence’s Market Outlook (the technical analysis of financial markets) for Tuesday April 27, 2021.

We’ve noted in the previous Market Outlook that: “the fact that the S&P is overbought as it approached 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.”  As anticipated, stocks closed mixed Monday as investors looked to a data-laden week of corporate earnings and further confirmation the Federal Reserve will stick with its market-friendly policy. For the day, the S&P rose 0.2 percent to 4,187.62. The Nasdaq Composite climbed 0.9 percent to 14,138.78. The Dow Jones Industrial Average lost 0.2 percent to 33,981.57.  The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, rose about 2 percent to 17.64.

Cyclicals resumed their climb higher, with energy and financials in the ascendency. The Federal Reserve, which meets on Tuesday and Wednesday, is expected to defend its policy of letting inflation run hot, while assuring markets it sees the pick-up in prices as only temporary. Chairman Jerome Powell will host a press conference Wednesday afternoon to discuss the Federal Open Market Committee’s decision.  As such, the SPDR S&P Bank ETF (KBE) rose 0.57 percent on the day and is up more than 27 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 basing sideways using the 52 zone, or the prior high set in early 2018, as support.  This week’s rally pushed the ETF above the upper boundary of the its short-term trading range signify a bullish breakout.  The overall technical backdrop remains supportive of further advance.  A close above 56.50 on a weekly closing basis will confirm this and trigger acceleration toward the 63 zone or the 127.2% Fibonacci extension.

KBE has support around 50.  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 April 23, 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 it was the case of late, the S&P continues drifting near the lower boundary of the red band.  Money Flow measure is registering a weak bullish signal.  The indicator printed a lower high as prices ascending, suggesting less and less money is chasing the rally.  Adding to concerns is the return of overbought conditions on an intraday basis.  These elements will give the bulls more pressures than they have already had.  While more backing and filling would not be a surprise, if the S&P could hold above the lower boundary of the pink band, around 4100, then a move above 4200 would be easier to achieve.

Short-term trading range: 4100 to 4200.  S&P has support around 4160.  A failure to hold above that level has measured move to around 4100.  Resistance is around 4200.  A sustain advance above that level has measured move to 4290.

Long-term trading range: 3550 to 4500.  S&P has support near 3900.  A failure to hold above that level has measured move to 3550.  The index has resistance near 4200.  A close above that level has measured move to 4500.

In summary, although overbought condition is keeping buyers at bay, S&P’s 4200 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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